The Colorado party had ruled Paraguay since 1947, backing and then surviving the 35-year military rule of General Alfredo Stroessner, who was accused of killing almost 1,000 people.
On Monday, Lugo said he expected the Colorado party to act as an "intelligent, rational" opposition force once he takes office on August 15.
"There are major possibilities for starting a dialogue and forming new alliances within congress to assure Paraguay is governable," he said.
Mark Weisbrot of the US-based Centre for Economic and Policy Research, said it was unclear how much impact Lugo could have after 60 years of Colorado party rule.
"It will depend on what their response is. Are they going to play by the rules of democracy?"
Lugo said his first priority would be to help Indians mired in poverty and to seek more revenues from Brazil from a dam on a river border between the two nations.
Lugo, who is often called the "red bishop" or "the bishop of the poor", left his post in the clergy three years ago saying he felt powerless to help Paraguay's poor, who make up nearly 40 per cent of the population.
|Ovelar conceded the election to Lugo|
late on Sunday [Reuters]
He launched his political career a year later and won the support of Paraguayans by promising to root out corruption.
On Monday, he apologised to pope Benedict XVI for his decision to leave the church, adding that he hoped to return to his post as bishop once he presidency ended.
Lugo said before the win that he preferred the term "progressive" to "leftist" to describe his politics.
But critics say he wants to install a "revolutionary" government in the South American country, but while Lugo admires Hugo Chavez, the Venezuelan president and Evo Morales, the Bolivian president, he has said Paraguay should "follow its own path".
Argentina, Brazil, Uruguay and Chile, as well as Bolivia and Venezuela, have all voted in left-leaning governments in recent years.
The US said it looked forward to working with Lugo, declaring that polls from which he emerged victorious were a boost for democracy.