Justin Trudeau's Liberal Party has retained power but as a minority government, according to projections by Canada's national broadcaster, CBC.
Despite some early losses in Canada's eastern provinces, the Liberals are expected to claim the most seats in parliament, giving them a second term.
This federal election was seen as a referendum on Mr Trudeau, who endured a bumpy first term, tainted by scandal.
His Liberals were neck-and-neck with their centre-right Conservative rivals.
Mr Trudeau's weakened grip on power will force him to work with other parties to pass legislation during this next term.
There are still lots of votes to count so it is unclear how each party will ultimately fare.
But if the projection proves to be correct, it will be a bitterly disappointing result for Conservative leader Andrew Scheer.
Why has Trudeau's popularity fallen?
Mr Trudeau swept into power in 2015 promising "real change" and a slew of progressive pledges.
Now, after four years in power, Mr Trudeau has faced criticism for his ability to follow through.
Media playback is unsupported on your device
His environmental record, for example, has been undercut by his support for the Trans Mountain oil pipeline expansion project and his purchase pipeline infrastructure to ensure it goes ahead.
Canada is also not on track to meet its Paris Agreement greenhouse gas reduction target of 30% below 2005 levels by 2030.
And Mr Trudeau's vow to institute federal electoral reform was quickly abandoned, angering some left-leaning voters excited by the prospect of seeing an alternative voting system
Still, according to an independent assessment by two dozen Canadian academics, Mr Trudeau has kept – fully or partially – 92% of these promises, the most by any Canadian government in 35 years.
Mr Trudeau's first term has also been impeded with two major scandals.
An ethics scandal early this year, known as the SNC-Lavalin affair, took a major toll on his support.
Last month an ethics watchdog found the prime minister had violated federal conflict of interest rules by improperly trying to influence a former minister in relation to a criminal trial facing major Canadian engineering firm SNC-Lavalin.
That minister – Jody Wilson-Raybould – ran as an independent after being booted from the Liberals by Mr Trudeau. Her seat in Vancouver, British Columbia, has yet to be called.
Mr Trudeau's election odds then seemed at risk when images of the president wearing blackface make-up in three separate instances were widely circulated.
The images were seen as a major hit to Mr Trudeau's cultivated political image, characterised by compassion and inclusion.
At Trudeau's victory party
By Jessica Murphy, Montreal
The mood is joyful if not jubilant in the Liberal election night headquarters in Montreal, where a growing crowd of supporters are cheering results showing Liberal wins as they come up on the big screens.
They may not have their majority but the Liberals are on track to win the most seats – and projections currently suggest it's not as close a race between the Liberals and Conservatives as some polls had suggested.
As one young supporter, Adam Steiner, 18Read More – Source
