Only 0.2 percentage points separated the two parties - in a heavily splintered political landscape where the Social Democrats were the biggest party with 17.7 percent of votes.
Finland's leftist Social Democrats won a razor-thin victory in Sunday's general election, holding off the far-right Finns Party which surged on an anti-immigration xenophobic agenda.
With 100 percent of ballots counted, the Social Democrats, led by 56-year-old former trade union boss Antti Rinne, picked up 40 seats in parliament, after campaigning on a ticket of fierce opposition to the austerity imposed by the previous center-right government of Prime Minister Juha Sipila.
Meanwhile, the Finns Party, which won 39 seats, had focused almost entirely on an anti-immigration agenda under the leadership of hardline MEP Jussi Halla-aho, who also decried the "climate hysteria" of the other parties.
The Social Democrats now need to form a coalition with other parties commanding at least 101 MPs between them - probably with the Green Party as well as the Left Alliance.
The success of the Social Democrats would mark a departure for Finland and the region, where leftist parties have struggled in recent years, as some of their working-class votes went to anti-immigrant nationalist parties.
With the European Parliament election less than two months away, the Finnish ballot is being watched in Brussels.
The Finn party more than doubled its presence in parliament, from 17 seats to 39, and regained all of the ground it lost when more than half of Finns Party MPs fled the party in 2017 on the election of hardline leader Jussi Halla-aho.
In Sweden, Prime Minister Stefan Lofven has stuck to power after his Social Democrats suffered their worst parliamentary election result in more than a century last autumn, enlisting the support of two liberal parties with a pledge to establish some right-wing policies.
In Denmark, which holds an election in June, the Social Democrats are gaining ground, in part after supporting the populists’ anti-immigrant rhetoric.