Tense negotiations are now expected after the political group, which was founded four years ago by internet activists, and its allies won 44.3 per cent of the vote, equating to 28 seats in parliament, four short of the 32 needed to command an overall majority.
The incumbent Independence Party polled better than expected with 29.8 per cent of the vote, and its coalition partner the Progressive Party collected 10.2 per cent, according to prelimary results released by national broadcaster RUV. The Pirate Party won 13.5 per cent of the vote, coming in just behind their allies the Left Green Movement, which got 15.8 per cent. The Pirate’s other left-of-centre partners, the Social Democratic Alliance and Bright Future, collected 15 per cent of the vote between them.
Some polls predicted the anti-establishment party and its allies would win the election, after discontent with the existing government saw their popularity soar.
Documents leaked from the law firm Mossack Fonseca in April, known as the Panama Papers, showed Progressive Party leader and then-Prime Minister Sigmundur David Gunnlaugsson had previously held an undeclared stake in an offshore company, which caused widespread anger in the Nordic country.
Mr Gunnlaugsson denied any wrongdoing but resigned and was succeeded by ally Sigurdur Ingi Johannsson.
Shortly after the scandal, the Pirate Party, which advocates for more direct democracy and greater internet freedom, had shot up to more than 40 per cent in opinion polls.
But on Saturday, a left-wing alliance failed to gain a majority, leaving the pro-European Reform Party, which had 10.1 per cent of the vote, in the position of possible kingmaker.
The liberal party did not take sides ahead of the election, but some analysts said it was unlikely to form an alliance with a Pirate-led coalition and would probably favour the current government as its economic policy leans rightwards.
RUV said the preliminary results were based on 50,669 votes cast. Iceland had 246,515 registered voters for Saturday’s ballot.
As half of a governing coalition with the centrist Progressive Party, the ruling Independence Party said during its campaign that recent progress on the economy had earned it a renewed mandate, the Wall Street Journal reported.
Iceland’s economy was destroyed by the 2008 financial crisis, but growth in the fishing and tourism sectors means the economy is expected to grow by about five per cent this year, much faster than the European average, according to the central bank. There is currently just over three per cent unemployment.
Yet, in the run-up to the vote, Icelanders showed growing discontent with the political establishment.
The Pirate Party won just five per cent of votes and three of 63 seats in Iceland’s 2013 general election, but after revelations about Mr Gunnlaugsson’s involvement in off-shore companies, the party, which takes a strong anti-corruption stance, made unprecedented gains in opinion polls.
The group’s election campaign is partly crowd-funded, they have promised to grant asylum to US whistleblower Edward Snowden and accept the bitcoin currency.
Looser copyright rules and the decriminalisation of drugs are among other policy pledges.
The Pirate Party also tried to secure the youth vote by asking the developers of Pokemon Go to turn polling stations into Pokestops – locations where players can collect the items needed to catch Pokemon.
Even the party’s founder, a 49-year-old poet, web programmer and former WikiLeaks activist, said she was shocked by the rise of the group.
“No way,” Birgitta Jónsdóttir told journalists, when asked whether she could have envisioned her party governing the country so soon after its launch.