Labour's hopes of winning an outright majority in the historic election for Scotland's first parliament in 300 years have been dashed.

Thanks to the system of proportional representation introduced by Tony Blair, the party is expected to fall just short of the 65-seat winning post for total control.

Scottish Secretary Donald Dewar will head the largest party in the parliament and will certainly become Scotland's first "prime minister". But he will face a powerful SNP opposition which gained massively from PR.

The result will spark a period of fevered negotiations as Labour attempts to forge a coalition with the Liberal Democrats.

It was always likely that Labour would fall short of a majority and there were rumours before the poll that negotiations about a post-election pact had already taken place between Labour and the Liberal Democrats, although both parties denied it.

It would be possible for Labour to attempt to rule as a minority government, but that would risk pitching the first Scottish parliament into chaos with the opposition parties launching regular strikes on Labour policy.

High price

Instead, it is almost certain Mr Dewar will try to stitch up a deal with the Liberal Democrats, led by Jim Wallace.

They will spend much of the weekend working out their tactics, and they are bound to demand a high price for any deal with Mr Dewar.

Top of their list will be the scrapping of Labour's plans to introduce tuition fees for students, which has sparked a storm of protests.

Alongside that will be a demand for a number of Liberal Democrat ministers to be included in the first Scottish cabinet.

Despite Labour's failure to win an outright victory, the result still represents a major victory for both Tony Blair and Mr Dewar.

Smith's dream

Creating the parliament was the fulfilment of a dream held by former Labour leader John Smith which, after his death, became a central plank of Labour's election manifesto in 1997.

Once the issue had been settled in a referendum after the election, there were fears that the nationalists might even win a majority in the parliament and take Scotland out of the UK.

As a result Labour concentrated much of its campaign on warning of the alleged dangers of "divorce".

But the SNP threat lessened during the campaign and, on the night, the party failed to win three of its target seats.

However, like the Tories and a host of smaller parties, they made up significant ground on the second, top-up vote.

The result offered a small glimmer of light for the Tories but only as a direct result of the system of voting.

They failed to win a single seat under the traditional, first-past-the-post section of the ballot with their leader, David McLetchie, failing to take Edinburgh Pentlands - once rock-solid Tory territory.