Caption: Tony Abbott said the conservative coalition was "back in business"
Australian Prime Minister Julia Gillard has made contact with independent candidates to try to form a government after an inconclusive election.
Ms Gillard said she would continue to provide "stable" government as final votes are counted.
She acknowledged that neither her Labor Party nor the opposition conservative coalition was likely to win the 76 seats needed for an outright majority.
ABC Australia is forecasting 72 seats for Labor and 73 for the conservatives.
With 78% of votes counted, Labor is already set to win 72 seats, and Tony Abbott's Liberal/National coalition is on course for 70, according to national broadcaster ABC.
"It is clear that neither party has earned the right to government in its own right," Ms Gillard said. She added that Labor had won the most votes overall nationally, if minor parties are discounted.
But opposition leader Tony Abbott said it was clear Labor had lost its parliamentary majority and its legitimacy.
"There was a savage swing against this government," he said.
The election comes two months after Ms Gillard ousted Kevin Rudd in a controversial leadership challenge.
'Good faith'
Australia has not had a hung parliament since 1940.
A handful of members of parliament now appear to hold the balance of power. They include three independents, a Green Party candidate, and an independent whose seat is not yet confirmed.
"It's my intention to negotiate in good faith an effective agreement to form government," Ms Gillard told journalists on Sunday.
She added that she would "continue to provide stable and effective government in accordance with our democratic process while the final votes are counted in this election".
The BBC's Nick Bryant, in Sydney, says the independent candidates will try to get the best deal they can for their constituencies, and there may well be some pork barrel politics over the next few days as Ms Gillard and Mr Abbott try to gather a coalition.
Two independents, Rob Oakeshott and Tony Windsor, said they would side with the party most able to provide stable government, according to the Associated Press. A third independent, Bob Katter, said he would back the party that promised the best deal for his constituents.
All three are former members of conservative parties.
'Night of pride'
Mr Windsor said he had received two "very kind phone calls" from Ms Gillard and then Mr Abbott.
"Obviously we did mention if there was a hung parliament that there may have to be some discussion," he added.
After the vote, Mr Abbott told supporters in Sydney that it had been "a night for pride in our achievements".
He said his coalition was "back in business" and would try to form a government, and that Labor would "never be able to govern effectively in a minority".
Initial counting had given Labor a marginal lead over Mr Abbott's coalition - but other results suggested heavy swings against Labor, in particular in the key states of Queensland and New South Wales.
Voting is compulsory in Australia, with 14 million registered voters.
Correspondents say Mr Abbott has tried to exploit the Labor party's divisions after the departure of Mr Rudd, trying to portray his coalition as a stable answer to a government beset by in-fighting.
In his campaign he has pledged to tighten immigration and has hit out at government spending.
He has also toned down his well-known climate change scepticism.
Ms Gillard, a former lawyer who called a snap election shortly after coming to office, is hoping to be rewarded for the government's handling of the economy, which weathered the global recession remarkably well.
Ms Gillard won a leadership race in June but, despite her success, her support has fallen in the two months she has been in office.
Coppied by http://www.kbc.co.ke/story.asp?ID=65964
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