He said there was "no prouder job in the world than being prime minister of Australia".
The election was fought mainly on domestic issues, with Labor capitalising on anger at workplace laws and rising interest rates which put home owners under financial pressure at a time when Australia's economy is booming.
Kevin Rudd, a career diplomat and Australia's new prime minister, has promised his Labor Party will:
- withdraw 500 combat troops from Iraq
- be more independent of the US on foreign policy
- create a new US-style "Homeland Security" department
- close Australia's offshore refugee detention centres on Nauru and Papua New Guinea
- ratify the Kyoto Protocol
- cut carbon emissions by 60 per cent of 2000 levels by 2050
- make income tax cuts of A$31bn
Kevin Rudd, the 50-year-old Labor party leader, presented himself as a new generation politician compared with Howard, who is 68.
Rudd promised to pull Australian combat troops out of Iraq and sign the Kyoto Protocol on climate change, further isolating Washington on both issues.
The former diplomat, who speaks Mandarin, is also be expected to forge closer ties with China and other Asian nations.
His message for change attracted a swing of more than five per cent across the nation from the previous election, locking in only the sixth change of government since World War Two.
"I offer Australia new leadership for the future, a positive plan for the future because Mr Howard's government's best days now lay behind it," Rudd said on Friday.
"Mr Howard has gone stale in his government's approach to the future."
Election analyst Antony Green predicted Labor would win at least 80 seats in the 150-seat parliament, giving it a clear majority in its own right for the first time since it lost power to Howard in 1996.
Green said: "The victory is starting to become more emphatic and the Labor Party is picking up seats way beyond the 5 per cent swing required."
The result point to Labor being in power in all of Australia's six states and two territories, with the lord mayor of the northern city of Brisbane now the senior ranking elected official in Howard's Liberal Party.
"We've all got goose bumps that finally we might have a leader who is passionate about fairness in this country.
"Finally, after 11 years, it's happening," Celeste Giese, 39, said at a football stadium in the northern city of Brisbane where Rudd was due to hold a victory party.
Dan Nolan, Al Jazeera's correspondent in Sydney, said that Rudd and his Labor party had run a strong campaign and there have been comparisons with Tony Blair's campaign that ended a long period of conservative rule in the UK in the 1990s.