The National Conference party - which supports the government in Delhi - failed to win a majority in the new assembly.

Though elections (in Kashmir) alone cannot solve the problems between India and Pakistan they are an important... a starting point

Robert Blackwill, US Ambassador

One of the prominent casualties is the National Conference party leader, Omar Abdullah, who failed to win a seat.

He is the son of outgoing chief minister Farooq Abdullah, whose family has dominated the Kashmiri political landscape for most of the past 50 years.

Indian Prime Minister Atal Behari Vajpayee said: "What is important is free and fair elections and not who wins or who loses. Democracy has won in Kashmir."

The US said successful completion of elections in Kashmir could pave the way for an early resumption of dialogue between India and Pakistan.

Pakistan had already dismissed the vote as a farce, and most separatists boycotted the poll.

Militants fighting Indian rule threatened to kill those taking part.

Anti-incumbency wave

When he heard the result, a visibly upset Omar Abdullah sped away in his motorcade.

Mr Abdullah described the vote as a triumph for democracy, but made clear that he wasn't interested in power sharing.

He also said that his party's closeness to the government in Delhi was the reason for its defeat.

A junior minister in the federal government, Mr Abdullah was launched into state politics by his father Farooq Abdullah, just ahead of assembly elections.

Final results

Total seats: 87 National Conference: 28 Congress: 20 PDP: 16 Others: 8 Independents: 15

But observers say the 32-year-old leader who spoke little Kashmiri seemed to have failed to convince voters.

Analysts say they are surprised by the showings of the opposition Congress Party and People's Democratic Party (PDP).

Congress swept much of the Jammu region in the south of the territory, and the PDP made major gains in the Kashmir Valley.

The BBC's Jill McGivering in Kashmir says many voters had expressed frustration with the National Conference, especially on local issues such as employment and education

Jubilant Congress and PDP supporters began early celebrations soon as results started coming in.

Poll boycott

Separatist groups had boycotted the poll and Muslim militants launched violent attacks in an attempt to disrupt elections.

More than 800 people were killed since the elections were announced.

Mr Abdullah says there are lessons to be learnt

Correspondents say these elections are not likely to affect the broader question of the political future of Kashmir.

That power lies in the hands of the central government in Delhi, but it could prove a turning point psychologically.

For decades local people have complained that elections here have not been free and fair.

Some observers see the willingness to take part in elections, and the fact they have delivered change as the most important result of all.