Polls on the eve of the vote show Geert Wilders, the leader of the anti-Islam and anti-EU Party for Freedom, running just behind front-running Mark Rutte, the incumbent prime minister and leader of the liberal conservative VVD party.
The Netherlands' main exit poll suggests Rutte's party won 31 seats in the 150-place legislature, 12 more than Wilders' party, which shared second place with two other parties. "The first victory is in!"
Rutte declared it an "evening in which the Netherlands, after Brexit, after the American elections, said "stop" to the wrong kind of populism".
"Those are not the 30 seats we hoped for", Wilders told reporters early Thursday, adding that he'd "rather have been the biggest party".
Wilders, who campaigned on radical pledges to close borders to migrants from Muslim nations, close mosques, ban the Quran and take the Netherlands out of the European Union, had insisted that whatever the result of the election, the kind of populist politics he and others in Europe represent aren't going away. The euro gained as the results pointed to a clear Rutte victory.
With crucial elections in France in April and May and then in Germany in September, Wednesday's election in one of the EU's founding members was in the worldwide spotlight like rarely before. Holland has refused to allow Turkish ministers to stage political rallies on Dutch territory ahead of a referendum by Turkey on the expansion of President Tayyip Erdogan's executive powers. It showed Rutte as refusing to bow to pressure from outside, a stance which has widespread backing in the nation. "You can't script this if it was a movie", Amsterdam Free University political scientist Andre Krouwel said.
"Rutte has not seen the back of me!"
Mr Rutte has said that would lead to chaos, but has moved his campaign to the right on some issues in response to Mr Wilders's success.
Rutte has driven through unpopular austerity measures over the last four years, but the Dutch economic recovery has gathered pace and unemployment has fallen fast.
With no clear outcome in sight and all major parties saying they will not work with Wilders' PVV, coalition talks are predicted to be hard and drawn out.
Wilders, meanwhile, attempted to tap into discontent among voters who said they were not benefiting from the economic recovery.
The chance of Mr Wilders becoming prime minister in the Netherlands, where a proportional representation voting system all but guarantees coalition governments, is remote.
The left-leaning Dutch Labor Party appeared to be hammered by its supporters for its role over the last four years in pushing through a tough austerity package as junior member in a two-party Cabinet with Rutte's VVD.
Wednesday's election is expected to be followed by protracted coalition talks between several parties since no single party is likely to have an outright majority.