Leterme's Christian Democrats and their small nationalist allies N-VA saw their share of the vote surge to 30.5 per cent in the northern region that is home to 60 per cent of Belgians.
Belgium's likely next prime minister claimed victory before rapturous supporters waving the Flemish flag.
"It seems to be a very large victory so I'm very happy," the 46-year-old said, promising to work for "a modern restructuring of the state".
After two four-year terms, the Liberal Democrats only managed 18.6 per cent of the vote.
The far-right Vlaams Belang, or Flemish Interests party, took about 19.1 per cent of the vote, to remain the second largest party in the Flanders region.
However, Vlaams Belang will probably not be included in any coalition government, with other parties shunning them over their manifesto that Flanders should secede from Belgium.
Negotiations on forming a government are due to start on Monday and may take three months in a country where political compromise is the norm.
A Christian Democrat/Socialist government had seemed most likely but such was the slide in the Socialists' support that this coalition alone no longer seems possible.
Leterme, who needs a two-thirds majority to push through constitutional reform, said he would listen to all parties.
After his party's victory, Leterme raised the issue of devolving more powers to the regions, which some fear could be a prelude to breaking up the country.
Leterme wants the regions, already responsible for public works, transport, agriculture and the environment, to have more control over labour policy, justice and health.
Language will play a key role in the formation of a new coalition government, as a linguistic balance is essential for Belgian political stability.
Voters chose from separate francophone and Flemish party lists, depending on where they live. The federal government normally consists of majorities in both regions.
Leterme will have to convince francophones he is fit to lead Belgium, having suggested last year they were not smart enough to learn Dutch.
He was the most popular candidate in Flanders, but has scant backing in southern Belgium.