The People's Democratic Party led by Sangay Ngedup, the present king's uncle, was trounced in the polls, winning just three of 47 seats.
Both parties are staunchly loyal to the royal family and both promised to stick with Gross National Happiness to measure growth.
Jigme Khesar Namgyel Wangchuck, the Bhutanese king, is expected to retain a strong influence in running the country.
The kingdom's move to democracy began in 2001 when Jigme Singye Wangchuck, the former king handed over day to day government to a council of ministers and stepped down in favour of his son in 2006.
Palden Tshering, spokesman for the DPT, told Al Jazeera that people in Bhutan will realise the kind of role and responsibilities they now possess in a democracy.
"What goes on in neighbouring countries is of concern to us, particularly the political situaton in Nepal," he said.
"But we believe this is the right time to make a democratic transition, when the king's popularity is so high."
The US-educated Thinley, who is expected to become prime minister, is in his constituency in eastern Bhutan and could not be reached for comment.
Thinley has twice been premier under the previous royal governments and has been one of the architects of the nation’s efforts to measure its growth and prosperity in terms of happiness.
Thinley's focus on happiness may have swung the election in his party's favour, one observer said.
Kinley Dorji, editor-in-chief of the Kuensel newspaper, said: "DPT's vision and manifesto are completely based on the Gross National Happiness concept.
"They were seen to be a stronger advocate of the idea," he said.
The winning party has refrained from celebrating its victory as it waits until the end of a 10-day period during which opposition candidates can contest the results.
The country's election body is expected to certify the victory on April 5, after which the party will form a government.