The centre-left Social Democrats, returning to power after four years as the country's leading opposition party, have said they will try to form a one-party minority government.
Mette Frederiksen, the leader of Denmark's largest party, now starts complex talks to reach a basis for a government.
It will seek support from the right on some issues, such as immigration, and from the left on other matters, such as social welfare, she said.
Local resident Nina Hassel said she was happy with the result but also wanted to see Denmark take on a more welcoming stance with refugees.
Another local resident, Per Blessing said the result was "quite clear.
"It is a more red Denmark that we are waking up to this morning," he said.
Incumbent Prime Minister Lars Loekke Rasmussen whose Liberals made gains, resigned on Thursday.
He wants to be part of a coalition with the Social Democrats, something Frederiksen has rejected.
The populist Danish People's Party's performance was a contrast to some other European countries, where far-right parties have been on the rise.
The party was the second-largest party in the outgoing parliament, but its vote share plunged to about 9 percent on Wednesday, compared to 21.1 percent in 2015.
However, the collapse of the far-right may have more to do with the Social Democrats tough position on immigration, than a shift in the population's view on immigration policies among the population.
"The social democrats have changed their position on immigration towards the right over the past electoral term," said political analyst Rune Stubager.
He said now the policy line off the centre of Danish politics on immigration had shifted to the right.
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