Racan could not get his party's message through to voters

Ivica Racan's Social Democrats lost out to the Croatian Democratic Union (HDZ) of late President Franjo Tudjman.

With about 90% of the votes counted, HDZ and its allies were on course to win 75 out of the 140 seats, against 63 for the outgoing coalition.

"We congratulate HDZ on its very good results," Mr Racan told journalists in the capital, Zagreb.

"We expect it to take over the responsibility of power and form a government with potential partners."

Nationalist delight

HDZ leader Ivo Sanader hailed his party's "brilliant victory".

"The voters showed that this government was a bad experiment. Now it is up to us to restore faith in the government, the way we restored faith in our party," said Mr Sanader.

The BBC's Nick Hawton in Zagreb says HDZ is the big winner in the poll, but may still need the support of smaller parties to form a government.

Press ponders results

The election was Croatia's fourth since it gained independence in 1991.

The election could have an impact on how quickly the European Union invites Croatia to join.

The new government will also face pressure to co-operate more with the United Nations war crimes tribunal, and to do more to bring about the return of thousands of Serb war refugees.

The projections from the electoral commission do not include up to 20 further seats allotted to minorities and Croatians abroad.

More than four million people in the former Yugoslav republic were entitled to vote, including 400,000 who live outside the country.

President Tudjman led the country through the 1990s wars that led to the break-up of the old Yugoslavia.

Change of direction

His HDZ party has been in opposition for the past three years.

Mr Sanader, its new leader, claims the party has reformed from its more isolationist and nationalist policies of the past.

The party has also tried to exploit voters' frustration over the painful course of economic reforms launched by Mr Racan.