With counting nearly complete, the M5S has won 32.6 per cent of the votes for the lower house of parliament, the Chamber of Deputies, and its leader Luigi Di Maio claimed that the party was going to triple its parliamentary seats.
"These elections have been a triumph for the Five Star Movement, we are the absolute winners," Di Maio said in Rome, adding that they would project his party "inevitably towards the government of the country."
However, the M5S trails a rightist coalition garnering around 37 per cent of the vote, including the League on 17.5 per cent and ex-premier Silvio Berlusconi's more mainstream Forza Italia party on 14 per cent.
"The centre-right has won and can govern," League head Matteo Salvini said from his native Milan, presenting himself as coalition leader and prime minister in waiting, and ruling out jumping ship to form a eurosceptic government with the M5S.
"No. N-O," he told reporters.
With final results not in yet, parliamentary numbers were still undetermined. But neither right-wingers nor the M5S were expected to have an overall majority, forcing them to seek outside support from others.
The election's biggest loser, the centre-left Democratic Party (PD), would be the obvious choice. But the party is in disarray, having collapsed to under 20 per cent, and its leader, former premier Matteo Renzi, was rumoured to be close to resigning.
The wider centre-left coalition won just under 23 per cent of votes, and key PD figures such as Interior Minister Marco Minniti and Culture Minister Dario Franceschini were defeated in their constituencies.
The PD crashed after five years in government in which the economy recovered from recession, but remained behind European Union growth rates, and unpopular mass immigration from Africa was contained only from 2017 onwards.
The M5S swept the poorer south, winning more than 40 per cent across its regions, with a peak of more than 50 per cent in Naples, and the centre-right prevailed in the north, where the League was historically based.
The outcome from Sunday's election was concerning for Brussels, as it boosts populist and eurosceptic forces in one of the biggest European Union members at a time when the bloc wants to embark on major economic and political reforms.
Luxembourg Foreign Minister Jean Asselborn blamed the election results on the EU's failure to reform its migration system.
"The main factor in this election result is migration," Asselborn told dpa, adding that a lack of European solidarity on the issue "has added grist to the mill of the populists and right-wing extremists."
Meanwhile, the main index on the Milan stock exchange, the FTSE MIB, was down by almost 1 per cent at around 2 pm (1300 GMT).
German Chancellor Angela Merkel said through a spokesman she hopes in a rapid formation of a government "for the good of Italians and the good of our shared Europe," and the European Commission expressed "confidence in [Italian] President [Sergio] Mattarella’s abilities" to make that happen.
The leader of France's anti-EU National Front party, Marine Le Pen, cheered its ally the League, calling its success a "new stage of the people's awakening," while Nigel Farage of Britain's anti-EU UKIP party congratulated the M5S.
"This is a huge surge for eurosceptic and anti-establishment parties in Italy. The EU's misguided immigration policy is leading to great resentment and will spell its end," Farage said.

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