THE HAGUE: Dutch Prime Minister Mark Rutte's Liberals won a closely contested election, but he faced the prospect of having to form a government with his arch-rivals from the Labour party on Thursday.

In what was by the standards of the last decade a very clear result, voters handed pro-European parties a sweeping victory, shunning the radical fringes and dispelling concerns eurosceptics could gain sway in a country viewed as a core member of the euro zone family.

With more than 98 per cent of votes counted, Rutte's centre-right Liberals won 41 seats in the 150-member lower house, giving them a two-seat lead over the centre-left Labour Party on 39 seats.

“We fought this election house by house, street by street, city by city, and I'm proud. Tomorrow I will take the first steps leading to the formation of a cabinet,” Rutte said overnight after Labour leader Diederik Samsom conceded defeat.

While the Liberals and Labour have played down talk of forming a coalition, the two parties would together command a governing majority in parliament.

That would be a rare outcome in a country where three- or four-member coalitions are not unusual and coalition talks often take several months.

That could offer the prospect of badly-needed political stability at a time of sluggish growth and when many say potentially unpopular legislation is needed to reform the housing market and healthcare.

But it could also make for difficult coalition negotiations between two almost equal partners.

While both parties are broadly pro-European, they have very different ideas on social and fiscal policy.

“Forced marriage”

“(These two) parties have become so big that neither can form a majority cabinet with other parties,” said sociologist Paul Schnabel in a column for business daily Het Financieele Dagblad.

“That also makes it difficult because they are condemned to each other. A forced marriage, which usually has little blessing.”

Rutte's government was known throughout Europe for its hardline stance on fiscal discipline, demanding austerity from indebted countries on the euro zone's fringes and insisting the Netherlands meet its own European Union deficit targets.

He will, however, probably lose his close ally, outspoken Finance Minister Jan Kees de Jager, whose Christian Democrat party – which has the Dutch post-war political landscape – crashed to its worst result ever, coming fifth.

Samsom, who promised “a more social Netherlands”, wants a slower pace of cuts in order to allow for more fiscal stimulus at a time when the Dutch economy is growing at far slower pace than neighbouring Germany.

He has also said he would give Greece more time to put its house in order and, unlike Rutte, has not ruled out a third bailout there.

Labour has also promised gradually to scrap an expensive tax credit for homeowners, something that would be disproportionately painful for supporters of the pro-business Liberals.

But despite their differences, the election was an unambiguous victory for the centrist parties.

The hard-left Socialists, who oppose austerity and euro zone bailouts, finished a distant third, tying with Geert Wilders' populist Freedom Party.

His far-right anti-immigration party campaigned to leave the euro and the European Union. He lost nearly half his seats.

The unexpectedly clear result removed another potential obstacle to efforts to stabilise Europe's single currency after Germany's constitutional court gave the green light for the euro zone's permanent bailout fund to go ahead.

But the Netherlands is likely to remain an awkward, tough-talking member of the single currency area, strongly resisting transfers to euro zone debtors, even if the two main parties end up forming a coalition.

Two-horse race

The campaign ended up as a two-horse race between Rutte, 45, a former Unilever human resources manager dubbed the “Teflon” prime minister because of his ability to brush off disasters, and energetic new Labour leader Samsom, 41, a former Greenpeace activist whose debating flair impressed voters.

Rutte, whose minority centre-right government was toppled by Wilders in April over spending cuts to trim the budget deficit, vowed earlier to pursue his tough policy on euro zone bailouts in alliance with fellow northern creditor countries Germany and Finland.

Samsom struck a tough tone for possible coalition negotiations, saying: “Nobody knows exactly what will happen tomorrow (Thursday), but one thing is certain. The course can be changed. The course must be changed because the right-wing policies of the past two years cannot continue.”