Tory leader Michael Howard will stand down "sooner rather than later" to allow a younger leader to take over.
Mr Howard said he would stay as leader until the party had the opportunity to consider whether it wanted to change the rules for electing a successor.
With few seats undeclared, Labour are on 353, down 47, the Tories on 197, up 31, and the Lib Dems on 62, up 10.
Mr Howard said the party's results and campaign meant that it could now "hold its head up high".
Labour's majority is predicted to drop from 167 to 66, with the party gaining the lowest share of any government.
Mr Howard said after his party's recent progress, there must never be a return to the "bickering and backstabbing of the past".
Speaking at a rally in newly-gained Putney, Mr Howard said his age meant he could not lead the party into the next general election.