In a setback to the fragile Middle East peace process, Israel's general elections threw up an inconclusive mandate on Wednesday, with both the centrists and the rightists claiming victory and a hawkish anti-Arab leader emerging as the possible kingmaker.

Israel Foreign Minister Tzipi Livni-led Kadima, which vowed to continue peace talks with the Palestinian authority, has won 28 seats in the 120-member house, while ex-premier Benjamin Netanyahu's right-wing Likud closely followed with 27 seats.

Both the parties have claimed victory but political analysts believe Netanyahu's chances at consolidating a relatively cohesive right-wing coalition are undeniably stronger than Livni's options.

Ultra-nationalist Yisrael Beitenu of Avigdor Lieberman is poised to be the kingmaker, winning 15 seats and becoming the third largest force, pushing the Defence Minister Ehud Barak's Labour to fourth spot with 13, the poorest show for the centre-left party that dominated Israeli politics for years.

Coalition talks may continue for weeks and Netanyahu has already met the leaders of ultra-orthodox Shas party which has secured 11 seats. The possible options are a hardline government led by Netanyahu, or, less likely, a unity government of Kadima and Likud with rotating premiership.

However, the overall slant to the right means whatever government is forged, it is unlikely to move quickly towards peace talks with the Palestinians.

Both Livni and Netanyahu told their respective supporters that they would be the next prime minister.

Greeting hundreds of party supporters in Tel Aviv, Livni called on her rival to be a part of a national unity government under her leadership as premier.

"Before the elections I offered you (Netanyahu) to join a national unity government led by me to take on the challenges facing the state of Israel. You declined and said the people must choose. Today the people have chosen Kadima," the foreign minister, aspiring to become the first woman prime minister of Israel in 40 years, said.

Netanyahu however interpreted the results differently. "The Israeli people have spoken loud and clear. Our way has triumphed and we will lead with it," he asserted.

Lieberman has clearly emerged the big victor at the polls and is being seen as the uncontested "kingmaker" who has been approached by both the parties for support.

The hardliner with a strong voting constituency among one million immigrants from the former Soviet Union has stoked controversy by saying that Israeli Arabs should pass a loyalty test or lose citizenship. Some 20 per cent of Israel's seven million citizens are Arabs.

Lieberman supports 'transfer' of Arab population in Israel to the Palestinian authority in a land swap deal that would let the Jewish state retain the West Bank settlements and contested elections on the slogan "no loyalty, no citizenship" targeting the minority population in the country.

Given his tough line against the Arabs bordering on racism, his presence in the government would spell doom for peace initiatives.

Lieberman has also told a local daily that Israel should continue its offensive against the Hamas like United States did against Japan [Images] during the Second World War, suggesting total destruction of the Gaza Strip.

Lieberman has hinted his allegiance to the right-wing bloc led by Netanyahu's Likud.

"It's true that Tzipi Livni won a surprise victory. But what is more important is that the right-wing camp won a clear majority. We want a right-wing government. That's our wish and we don't hide it," the Yisrael Beteinu party leader said.

Although the Palestinian authority has not expressed preference for any candidate, its senior negotiator Saeb Erakat expressed dismay that right-wing parties had performed so well.

Hamas also said Israel has voted for "extremists".