"This is a great night. This is a victory for those who kept the faith," Key told a cheering crowd in Auckland. "This is a victory for those who refused to be distracted and who knew that a vote for National was a vote for a brighter future for all New Zealanders."
Key gave credit to his deputy prime minister, Bill English, whom he described as "the best finance minister in the developed world."
With just a small number of special votes remaining to be counted, Key's party ended election night with 48 per cent of the vote.
It was a disastrous night for the National Party's closest rival, the Labour Party, which won just 25 per cent.
"The truth is, the party vote has returned a National government, and over the coming days and weeks we will need to reflect upon why," Labour Party leader David Cunliffe said in his concession speech. He said he called Key to congratulate him on his victory.
"It is rare for any government to be defeated while surfing an economic rebound with around a 4 per cent growth rate, even though the longer-term problems remain to be addressed," Cunliffe said.
Cunliffe didn't address his future plans, but many expect him to resign as Labour leader in the coming months following the defeat.
The election result showed a swing to conservative parties, with the liberal Labour and Green parties losing ground.
Under New Zealand's proportional voting system, parties typically must form coalitions to govern for the three-year terms.
If the results hold, however, it would mean the National Party could govern outright, something that has not happened for any party since the proportional system was introduced in 1996.
But Key said during his victory speech that his party still intended to form a coalition with other smaller parties, to gain a broader majority and form a stronger government.
Still, the numbers would mean that the National Party could pass legislation that doesn't have the support of any other parties.
In the last election three years ago, the National Party won 47 per cent of the vote.
Supporters say the party has managed New Zealand's economy well. The economy has been growing at a 4 per cent clip, while unemployment has dropped to 5.6 per cent. The government projects it will begin running budget surpluses this financial year, following years of deficits.

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