Swedish Prime Minister Magdalena Andersson has announced she is stepping down after conceding defeat in a close-fought election won by a coalition of right and far-right parties.
The leader of the Social Democrats said the right would enjoy a "narrow majority, but a majority nonetheless" following last weekend's general election.
"So tomorrow I will hand in my resignation as prime minister, and the responsibility for the continued process will go to the speaker," Ms Andersson said on Wednesday.
The leader of Sweden’s conservatives, Ulf Kristersson, is set to succeed her as prime minister.
"I will now start the work of forming a new government that can get things done," Mr Kristersson said in a video on his Instagram account.
The latest figures from the election authority show his party, the Moderates, along with the Sweden Democrats, the Christian Democrats and the Liberals, appear set to take 176 seats in the 349-seat Parliament. Ms Andersson's centre-left coalition is set to win 173 seats.
A handful of votes remains to be counted, but the result is unlikely to change significantly and is set to be confirmed at the weekend.
The election marks a watershed in Swedish politics with the anti-immigration Sweden Democrats, a party with roots in the white supremacist fringe, on the threshold of gaining influence over government policy.
The success of the party, which took over from Mr Kristersson's Moderates as the country's second biggest, has raised fears that Sweden's tolerant and inclusive politics are a thing of the past.
But its claim that Sweden's ills, particularly gang crime, are a result of decades of overgenerous immigration policies has hit home with many voters.
Mr Kristersson said he would build a government "for all of Sweden and all citizens".
"There is a big frustration in society, a fear of the violence, concern about the economy," he said.
"The world is very uncertain and the political polarisation has become far too big also in Sweden.
"Therefore, my message is that I want to unite, not divide."
Although Mr Kristersson's party is smaller, Sweden Democrat leader Jimmie Akesson could not secure the broad backing from the right needed to remove the Social Democrats.
Mr Kristersson is likely to try to form a government with the Christian Democrats and rely on support in Parliament from the Sweden Democrats and Liberals.
Ms Andersson accepted defeat but warned that many Swedes were worried about the Sweden Democrats' election success.
"I see your concern and I share it," she said.
The Sweden Democrats want to make Sweden the EU's toughest country on immigration. The party is keen to introduce legislation to deny those seeking asylum based on religious or LGBTQ grounds.
The party also wants to slash economic benefits for immigrants and give more power to police. This includes setting up zones in troubled areas where searches are allowed without concrete suspicion of a crime.
The Sweden Democrats look set to win 20.6 per cent of the vote, against 19.1 per cent for the Moderates. The Social Democrats will be at 30.4 per cent.
Commanding only a thin majority, Mr Kristersson faces challenges, not least of which is his party's junior status.
Forming an administration and agreeing on a budget will not be easy as the Liberals and Sweden Democrats refuse to serve together — or separately — in government and differ on many policies.
"Sweden is now going to get an administration that is only one or two parliamentary seats away from a government crisis," Ms Andersson said.
She said the her door was open to Mr Kristersson if he wanted to rethink his alliance with the Sweden Democrats.
Sweden is also in the middle of a cost of living crisis and could be heading for a recession next year.
Russia's war in Ukraine has destabilised the Baltic region, Sweden's backyard, and uncertainty remains over whether Turkey will eventually agree to Stockholm's application for Nato membership.
Measures to address climate change and long-term energy policy also need to be decided.
There are holes in the welfare system, which have exposed by the pandemic, that need to be plugged and a planned surge in defence spending must be financed.
