Australia election
Australian Prime Minister Malcolm Turnbull smiles as he is surrounded by members of the media departing his home located in the Sydney suburb of Point Piper, Australia, July 3, 2016. Reuters

Australia's political parties began horsetrading on Sunday to break an anticipated parliamentary deadlock after a dramatic election failed to produce a clear winner, raising the prospect of prolonged political and economic instability.

The exceptionally close vote leaves Prime Minister Malcolm Turnbull's center-right Liberal Party-led government in a precarious position, potentially needing the support of independent and minor parties to form government.

It has also opened the door to the possibility, albeit less likely, that the main opposition Labor Party could win enough backing from the smaller parties to form government itself, although Turnbull said on Sunday he remained "quietly confident" of returning his coalition to power for another three-year term.

"I can promise all Australians that we will dedicate our efforts to ensuring that the state of new parliament is resolved without division or rancor," Turnbull told reporters in Sydney.

Bill Shorten, the leader of the opposition Labor Party, said Australians had clearly rejected Turnbull's mandate for major economic changes like cuts to healthcare and company tax.

"What I'm very sure of is that while we don't know who the winner was, there is clearly one loser: Malcolm Turnbull's agenda for Australia and his efforts to cut Medicare," Shorten told reporters in Melbourne, referring the state healthcare service.

An election that was meant to put a line under years of political turmoil which has seen four prime ministers in three years has instead left a power vacuum in Canberra and fueled talk of a challenge to Turnbull's leadership of the Liberal Party, less than a year after he ousted then prime minister Tony Abbott in a party-room coup.

If the coalition fails to form a government, it would be the first time in 85 years an Australian ruling party has lost power after its first term in office.

The uncertainty is likely to spook markets when they reopen on Monday, with analysts predicting a fall in the Australian dollar and the share market.

Vote counting from Saturday's poll could take a week or more, and the coalition will rule under caretaker provisions in the interim.

Official electoral data for the House of Representatives showed a 3.2 percent swing away from the Liberal-led coalition government when officials clocked off in the early hours of Sunday with almost 10 million votes counted.

The coalition was expected to hold 68 seats in the House of Representatives, against Labor's 70 seats and five to independents and the Greens Party. A further seven seats were in the balance.

That leaves a small group of independents, whose election campaigns ranged from anti-Muslim and anti-immigration to economic protectionism and anti-gambling, as the kingmakers.

"We need to work co-operatively for the good of the nation," said Nick Xenophon, whose independent centrist Nick Xenophon Team has already picked up a lower house seat and is on track to win a handful more in the Senate. Xenophon has vowed to block the coalition's cornerstone A$50 billion ($37 billion) corporate tax cuts.


A Liberal senator told Reuters that while he expected that the coalition would form government, it was no sure thing.

"If I were advising the independents I'd tell them no ask is too big," the senator told Reuters, requesting anonymity as he wasn't authorized to speak publicly. "There's only one prize and it's a big prize and both parties want it."

The Liberal-National coalition and Labor Party require 76 seats in the House of Representatives to form government, putting the negotiating skills of Turnbull and opposition leader Bill Shorten in the spotlight.

Shorten late Saturday declared that no matter the final result "the Labor Party is back", after it lost government in a landslide in 2013.

Still, speculation had already begun about the ability of both men to hold onto leadership of their parties.

The political limbo is a major blow for Turnbull who had gambled on a risky double dissolution of parliament in a bid to oust intransigent independents in the upper house Senate blocking his economic agenda.

Turnbull had some of the highest poll ratings of an Australian leader on record shortly after he snatched the top job from Abbott in September.

But that popularity soured as he appeared to bend his center-right values on issues like climate change and same sex marriage under pressure from right-wing powerbrokers in his party.