Bhutan's opposition People's Democratic Party stormed to an upset victory on Saturday in elections as voters gave their verdict on five years of democracy, a local news website reported.
The People's Democratic Party (PDP) had won 30 seats in the vote for parliament while the incumbent Druk Phuensum Tshogpa (DPT) party had snared just 12 seats according to the website of Bhutan's national newspaper Kuensel, as of 8:00pm (1400 GMT).
The winning party needed 24 out of 47 seats up for grabs to form the next government in the "land of the thunder dragon", according to the Kuensel website, after two other groups were knocked out in a primary voting round in May.
The polling marked only the second time in history that voters in the isolated kingdom have elected a government,
It was not immediately possible the Election Commission of Bhutan to confirm the results.
Remote Bhutan's line of "dragon kings" ceded absolute power five years ago, introducing democracy to an electorate of fewer than 400,000 people.
The royalist DPT won the first election by a landslide in 2008 and bagged this year's primary round with 45 percent of votes.
But recent gains by the PDP shook up the contest with one local editorial calling it "a neck-and-neck race".
The DPT had sought to win favour with rural communities -- about 70 percent of the population -- by improving their access to roads, mobile phone networks and electricity in the past five years.
But the election process was stirred up by a recent straining of ties with Bhutan's giant neighbour and longtime ally India, which suddenly cut subsidies earlier this month on cooking gas and kerosene to the kingdom.
"People blame the incumbent government for not addressing the economy which is in a very bad shape, and the subsidy cut -- all this seems to be adding to their woes," said political analyst Kencho Wangdi ahead of the results.
The rising fuel prices come as Bhutan has been struggling under a credit crunch and import restrictions, after running out of Indian rupee supplies last year on soaring demand.
Casting votes was a huge logistical challenge across the mountainous country, with officials trekking for up to seven days to set up polling stations.
Bhutan is the only country in the world to pursue "Gross National Happiness", a development model that balances spiritual and mental wellbeing with financial growth.
It was the last country in the world to allow television in 1999, and high visitor fees aim to keep out mass tourism to shield the country's natural beauty and Buddhist culture.
Another policy that sets the country apart is its goal to make its farming 100 percent organic.
In April, Bhutan voted for 20 elected seats in the National Council, the upper house of parliament whose members have no party affiliation and monitor the government's actions, review legislation and advise the king.
Party leaders kicked off the election season in early May with a televised debate.