PM Taavi Roivas, whose party has 30 seats, is set to form a coalition in the 101-member parliament.
The results are a blow to the Centre Party, which has ties to Russian President Vladimir Putin, who were expected to do well in the poll.
Estonia was once part of the former Soviet Union but is now a NATO member.
“The Reform Party is the 2015 winner of the parliamentary elections,” Taavi Roivas declared on the ETV public television station.
Taavi Roivas’ party claimed 27.7% with most of the votes counted, down from 28.6% at the last parliamentary elections in 2011.
The pro-Russian Centre Party took 24.8% of the votes, winning one more seat to take them to 27 in total.
The Social Democrats, who have been Reform’s coalition partner, now hold 15 seats after losing four while the IRL party lost 9 seats to take them to 14.
Analysts said Reform Party could face some difficulty in forming a new coalition, with parliament now split between six parties rather than the previous four.
The two newcomers – a free-market liberal party and an anti-immigration conservative party – won 15 seats between them.
Asked whether he would contemplate forming a coalition with the Centre Party, Taavi Roivas said “definitely not”.
In the run up to the election, Taavi Roivas had called for an “Estonian-minded government”. At 35, he is the youngest prime minister in Europe.
Estonia’s political debate has been dominated by economic issues and fears over defense due to Russia’s actions in Ukraine.
One voter in the capital, Tallinn, told the AFP news agency: “If [the Russians] come in here, Estonia can’t do anything.”
“I’m not sure NATO will help us out, Let’s hope that it will not go that far,” he added.
Estonia has seen a number of airspace violations by Russia, and last year a security official was detained by Russia and accused of spying.
Taavi Roivas has voiced concerns that Russia could seek to destabilize other former Soviet states following the conflict in Ukraine.
The Centre Party leader, Edgar Saavisar, favors a friendlier approach to Moscow, and has previously suggested that Russia’s annexation of Crimea could be legitimate.
About a quarter of Estonia’s 1.3 million population are ethnic Russians, many of whom are Centre Party supporters.
Estonia is a pioneer of electronic voting, with a reported one in five casting their vote online.
VZSYBXs8JKoImage source: Wikimedia Commons President-elect Donald Trump celebrated his election victory at the Ultimate Fighting…
Millions of voters across the US chose to return Donald Trump to the White House…
Donald Trump declares victory in the US election as he addresses jubilant supporters in Florida.…
Stocks around the world are rising as Donald Trump appears to be on the cusp…
Donald Trump has won Pennsylvania, North Carolina and Georgia and taken a lead over Kamala…
Quincy Jones, the celebrated musician and producer who worked with Michael Jackson, Frank Sinatra, Ray…