With 92 per cent of votes counted, Puea Thai had won 260 seats out of 500, well ahead of the ruling Democrats with 163, according to the Election Commission.
"It is now clear from the election results so far that the Puea Thai Party has won the election, and the Democrat Party concedes defeat. I would like to congratulate the Puea Thai Party for the right to form a government," Abhisit Vejjajiva, the incumbent prime minister, said on television on Sunday.
Yingluck, who is set to become Thailand's first female prime minister, said she was working on building a coalition.
"I don't want to say it's victory for me and the Puea Thai party but people are giving me a chance and I will work to my best ability for the people," she told reporters at her party headquarters in Bangkok, the capital.
"While we are waiting for the official results, the Puea Thai executive has already contacted and discussed with Chart Thai Pattana to work together," the 44-year-old said, referring to negotiations for a coalition with a smaller party.
Sunday's vote was the first major electoral test for the Thai government since mass opposition rallies in Bangkok last year, which sparked a military crackdown that left at least 91 people dead.
Reporting from Bangkok, Al Jazeera's Wayne Hay said many Thais were taken aback by the scale of Pheu Thai party's projected win.
"Everyone is quite surprised, stunned - perhaps by these results," he said.
"Exit polls could change a little bit but certainly everything points towards a comprehensive win for the largest opposition party, Pheu Thai, led by Yingluck Shinawatra."
Yingluck lacks political experience but has garnered much attention as Thaksin's sister.
Thaksin, who has lived in self-imposed exile in Dubai since being ousted by the military on charges of corruption in a 2006 coup, remains hugely popular among the country's poor. The elite, however, are wary of him.
'Tough work ahead'
Thaksin told a Thai broadcaster in an interview held in Dubai, that he had called to congratulate his sister and cautioned her of "tough work ahead".
He also said he hoped to return to Thailand from the United Arab Emirates, but only when the time was right.
"I want to go back to Thailand but I will wait for the right moment," he said.
The Democrat party wants Thaksin to return to the country to stand trial for corruption.
Vejjajiva took office in 2008 following a court ruling that threw out the previous administration. His party has not won a general election in nearly two decades.
Pithaya Pookaman, who heads Pheu Thai's foreign relations, said a Pheu Thai landslide meant anti-democracy forces would have to "think very hard" before provoking a repeat of previous years' violence and election nullifications.
"We learned from our lessons. If the people give us a landslide victory; if the people give us an overwhelming victory, I'm sure the people who are trying to derail the election, who are trying to prevent democracy from working in Thailand, will have to think very hard," he said.
"I think the world opinion is upon them. The people have given their answer, their decision, so I think it's a matter of taking that into consideration and not derailing the democratic process."
'Common touch'
Yingluck, known as Pou (Crab), the nickname her parents gave her, has never run for office or held a government post, so she has a lot to prove to show she can run the country.
Some Thais, especially females, want to give her the benefit of the doubt and see this as a big step for women in a country where they have struggled for equal representation in government.
"I've always wanted to have the first lady prime minister," Areerak Saelim, 42-year-old owner of a sunglass shop in a Bangkok market.
"I've seen too many men failing to run the country. Maybe this time, things will be different. What women are - and men aren't - is meticulous. I'm pretty sure she can do the job based on her age and successful career."
Yaowalak Poolthong, first executive vice-president of Krung Thai Bank, said that gender should not be an issue.
"More and more women are capable, knowledgeable and can actually get the job done these days," she said.
Others questioned whether Yingluck was, in fact, her own woman.
"It's obvious who she represents ," Puttasa Karnsakulton, a 37-year-old clothing shop owner, referring to her fugitive brother.
And Puea Thai's plan to give each province $3.2mn to support the income-generating activities of women's groups has left some women's rights advocates sceptical.
"Who is to decide who will get the money? Will this be just a one-off handout? Will it work as a revolving fund?" Sutada Mekrungruengkul, director of the Gender and Development Research Institute, asked.
For now, she can bask in her victory after a campaign that left Vejjajiva, a career politician, struggling from day one. Many voters were won over by Yingluck's "common touch" – a quality she shares with her brother.
"In some way, I feel like I can connect with her and her brother even though we're poor and have nothing," Malai Jiemdee, a maid from the province of Nakhon Ratchasima, said.
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