PDP won 31 seats while ruling Druk Phuensum Tshogpa (DPT) got 14 seats in the 47-member National Assembly, according to latest poll figures, as results of the remaining two seats were awaited. To form a government, a party needs to win a minimum of 24 seats.
This is the second national election in Bhutan after the Himalayan country became a democracy in 2008. In the last election, PDP won only two of the 47 seats up for grabs.
The peaceful elections was marked by a heavy voter turnout of 80 per cent.
The DPT, with 45 legislators, ruled the country for five years with Jigmi Y Thinley as the prime minister.
During the campaigning, the rival parties tried to impress upon people that concerns like India's withdrawal of subsidy on kerosene and cooking gas would be resolved once they form the government.
India had cut off the gas subsidy to Bhutan since a pact with the country had expired on June 30.
However, India had assured Bhutan that it will not make it "suffer" and will proceed on the issue of gas and kerosene subsidy in "full consultation" with the new government there.
At the same time, India maintained that "careful accounting" was required to ensure proper usage of the subsidy.
Ahead of the elections, PDP general secretary Sonam Jatsho said, "Indo-Bhutan relations are so strong that you cannot imagine that it can be harmed due to some minor issues".
"We are telling people that doubts about Indo-Bhutan relations getting strained are unfounded. The relations only go deeper and strong. But due to certain policies of the last government, people are a little bit shaky. If we form the government, we will resolve all issues," he told PTI.
India has provided logistical support, including gifting nearly 4,130 Electronic Voting Machines (EVMs) to Bhutan and Chief Election Commissioner V S Sampath is here to witness the democratic process in the Himalayan nation as an observer.