With 99.5% of the ballots counted, Israeli media reported that Netanyahu's Likud Party had captured 30 of the 120 seats in Parliament, the Knesset, sweeping past his main rival, the center-left Zionist Union alliance, which got 24 seat.
He will still need the support of smaller parties to form a ruling coalition, but appeared to be in the best position to garner a majority of support in parliament after yesterday's vote.
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65-year-old Netanyahu, who has been in power for nine years over three terms, had earlier claimed victory in yesterday's elections.
He would become Israel's longest-serving leader if he secures a fourth term.
Netanyahu embarked on a last-minute scorched-earth campaign, promising that no Palestinian state would be established as long as he remained in office and insulting Arab citizens.
His victory is likely to further strain relations with the Palestinians.
Speaking after the polls closed yesterday, Netanyahu said he had already spoken to the leaders of other right-of-centre parties about forming a new government.
In a speech to his jubilant supporters in Tel Aviv, Netanyahu described the vote as a "great victory" for Likud, which had trailed the Zionist Union in opinion polls in the run-up to the election.
Netanyahu said the result was achieved "against all odds".
He asked the leaders of what he described as Israel's "national camp" to create "a government without delay".
According to report, Netanyahu could form a narrow coalition of nationalist and religious parties free of the ideological divisions that stymied his last government.
When final results are known, President Reuven Rivlin will give the task of forming a government to a party leader who he thinks has the strongest chance of assembling a coalition.
No party has ever won an outright majority under Israel's proportional representation voting system.
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