The reformist-backed moderate Hassan Rowhani will be Iran's next president after he scored an upset first-ballot victory over hardline rivals.
Mr Rowhani avoided a run-off by securing just over 50 per cent of more than 36 million votes cast in Friday's election.
Tehran's mayor Mohammad Bagher Qalibaf, a conservative candidate who had been running far behind in second place, conceded defeat.
Jubilant supporters wearing purple, Mr Rowhani's campaign colour, chanted "Amadi bye bye" outside his campaign headquarters last night. Mahmoud Ahmadinejad will leave office on August 3.
Mr Rowhani's surprise victory, described by one analyst as "a shift of historic proportions in Iran", will be viewed with some relief in western and Arab Gulf capitals.
A former chief nuclear negotiator, he has vowed to mend ties with the international community and is open to talks with the United States.
In the UAE, the President, Sheikh Khalifa, sent a message of congratulation to Mr Rowhani. "We look forward to working with you for the good of the region and the peoples of the UAE and Iran," Sheikh Khalifa said.
Mr Rowhani's election win is a blow to the hardliners who have dominated Iranian politics for the past eight years, and confidently expected to win when the short campaign began last month.
However, they split their vote by fielding four fractious and ambitious candidates, while reformists united behind Mr Rowhani.
The opposition had initially been left reeling after a major pro-reform hopeful, Akbar Hashemi Rafsanjani, a founding father of the 1979 Islamic revolution, was barred from running.
But Mr Rafsanjani and Iran's popular reformist leader, Mohammad Khatami, another former president, rallied behind Mr Rowhani while the hardliners failed to unite behind a single candidate.
Mr Rowhani's victory proved that Iran's reformist movement, crushed and marginalised after it challenged Mr Ahmadinejad's "stolen" re-election in 2009, remained a potent if latent force that has now chosen its moment to resurface.
Mr Rowhani's triumph suggested "a shift of historic proportions in Iran", said Suzanne Maloney, an Iran expert at the Brookings Institute in Washington. He is "an ideal candidate to spearhead a new initiative to wrest Iran from its debilitating battle with the international community over the nuclear issue".
Mr Rowhani, 65, has argued that a less confrontational foreign policy would allow Iran to advance its cherished nuclear programme while easing western concerns and allowing for sanctions to be rolled back.
His nearest rival, the slick, conservative mayor of Tehran, Mohammad Baqer Qalibaf, was in second place with only 15.6 per cent of the vote. His campsign slogan was: "I built Tehran, now let's build Iran."
Iran's unyielding chief nuclear negotiator, Saeed Jalili, the most hardline of all six candidates, who many believe was the real favourite of Iran's supreme leader, Ayatollah Ali Khamenei, lagged behind in third place with 11.38 per cent.
The dour Mr Jalili had pledged to use his experience in deadlocked nuclear talks with six world powers, including the United States, to pursue the same policy of uncompromising resistance to western demands if elected.
That defiant message clearly had little appeal to voters struggling to make ends meet under choking western sanctions.
Putting a brave face on an obvious setback, Ayatollah Khamenei said a "vote for any of these candidates is a vote for the Islamic republic and a vote for confidence in the system".
While the large turnout was mostly the result of disillusioned reformists belatedly deciding to vote, Iran's Kayhan daily, which is close to Ayatollah Khamenei, gave it a positive spin. The long queues at Friday's polls were the result of the supreme leader's calls for a "political epic" which had "stunned" the world and underlined the system's popular legitimacy.
That the vote passed peacefully - unlike in 2009 - will also be a consolation for Iran's septuagenarian supreme leader.
On domestic policy, Mr Rowhani, 65, has called for a civil-rights charter, the release of political prisoners and greater media freedoms. Appealing to the huge youth vote, he has also vowed to reduce unemployment and to back sex equality. All those calls resonated with the public.
"Though hardliners remain in control of key aspects of Iran's political system, the centrists and reformists have proven that even when the cards are stacked against them, they can still prevail due to their support among the population," said Trita Parsi, who heads the Iranian National American Council, an advocacy group.
Mr Rowhani was Iran's chief nuclear negotiator a decade ago when his country temporarily suspended uranium enrichment as a confidence-building measure in negotiations with European powers. But the West stood by its demand that the entire programme be ended and the deal collapsed when Mr Ahmadinejad came to power in 2005.
Iran went from having two dozen test centrifuges at that time to nearly 17,000 this year, according to a report in May by the International Atomic Energy Agency.
In choosing a colour to symbolise his campaign, in his case purple, Mr Rowhani echoed the signature green of the reformist movement that was battered - but clearly not beaten - four years ago.
Britain's former foreign secretary, Jack Straw, who dealt with Mr Rowhani during nuclear negotiations a decade ago, called him a "very experienced diplomat and politician", and said the result was "remarkable and welcome".
But some experts cautioned that not too much should be made of a Rowhani victory. "He is not an outsider and any gains made by him do not mean that the system is weak or that there are serious cracks," Rasool Nafisi, an Iranian affairs analyst at Strayer University in Virginia, said before the final results were announced.
"The ruling system has made sure that no one on the ballot is going to shake things up."
