The result is a remarkable comeback for the ex-leader's supporters after his ouster in a military coup sparked years of turmoil, and his youngest sister Yingluck Shinawatra is set to become Thailand's first female premier.
With almost all the votes counted, her Puea Thai party had won a clear majority with 263 seats out of 500, well ahead of incumbent Prime Minister Abhisit Vejjajiva's Democrats on 161, according to the Election Commission.
It estimated turnout at 74 per cent. More than 170,000 police were deployed to secure the vote, but it appeared to proceed peacefully.
The election – and what happens next – is seen as a major test of Thailand's ability to emerge from its long political crisis, which saw mass protests by Thaksin's "Red Shirt" supporters paralyse Bangkok last year.
The demonstrations culminated in the country's worst political violence in decades, when more than 90 people, mostly civilians, died in a military crackdown and major buildings were set ablaze.
The populist Thaksin is loathed by the ruling elite who see him as corrupt, authoritarian and a threat to the revered monarchy, and fears have been raised that an opposition victory could unleash more protests or even another coup.
A smiling Yingluck addressed jubilant supporters at the Puea Thai Party's headquarters in the Thai capital, saying: "Thaksin has called to congratulate me and said there was a tough job ahead."
The 44-year-old telegenic businesswoman, a political novice who Thaksin has described as his "clone", said she was working on building a coalition with the smaller Chart Thai Pattana and other parties.
"People are giving me a chance and I will work to my best ability," she added.
Abhisit, who took office in a 2008 parliamentary vote after a court threw out the previous administration, conceded, saying: "The outcome is clear – Puea Thai has won the election and the Democrats are defeated."
Although Puea Thai has secured an absolute majority in parliament, bringing other parties into government will bolster its hold on the legislature and may make it harder for the generals to justify seizing power.
The Election Commission is already studying some complaints of possible irregularities, which could see candidates given "red cards" and disqualified, potentially whittling down Puea Thai's majority.
Thaksin – who is hugely divisive in Thailand but whose parties or allies have now won the country's last five elections – called on all sides to respect the result.
"All parties must respect the people's decision otherwise our country cannot achieve peace," the billionaire former telecom tycoon told Thai television from his base in Dubai.
"I think people want to see reconciliation. They want to move forward," he said. "We will not seek revenge."
Former army commander Sonthi Boonyaratglin, the leader of the putsch that removed Thaksin in 2006, played down the possibility of new military intervention.
"I don't think there'll be a coup because (the) people's voice must be respected," he was quoted as saying by the Bangkok Post.
Thaksin, a former owner of Manchester City football club, lives in self-imposed exile to avoid a jail term for corruption and faces terrorism charges in connection with the April-May 2010 protests.
An amnesty proposed by Puea Thai could see him return, but would infuriate many in the Bangkok-based establishment in government, military and palace circles and could prompt protests by the royalist "Yellow Shirt" movement.
COMMENTS (1)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ