Both the Liberal and Labor parties are spinning the Bennelong by-election as a win, as the Liberals hold on to the seat despite a swing to Labor.
Liberal John Alexander's election gives Prime Minister Malcolm Turnbull back his 76-seat majority in the House of Representatives.
But as counting continues, Labor's Kristina Keneally has secured a swing of around 5 per cent to the Opposition.
Manager of Opposition Business Tony Burke conceded that swings in by-elections were generally larger than at general elections, but argued it still sent a strong message to Mr Turnbull.
"One in eight people who voted Liberal in Bennelong only a year ago voted Labor this time," Mr Burke told the ABC's Insiders.
But government frontbencher Paul Fletcher said Labor's campaign had failed.
"Labor invited the people of Bennelong to send a message to Malcolm Turnbull, and the message they sent was, please continue doing the job you're doing," Mr Fletcher told the ABC.
While Labor is celebrating the result in public, there is still some disappointment behind the scenes.
Few in the party thought Ms Keneally would pull off a victory, but some MPs hoped the contest would be tighter.
Meanwhile, Liberal MPs — including those critical of Mr Turnbull — said the result was a huge relief.
They acknowledged the Coalition was still on track for a defeat at the next election, but argued the Bennelong vote proved their position was not hopeless.
"This buys [the Prime Minister] time. It gives him space. We thought it would be worse. But we still have to find a way to win, and that means lifting our primary vote," said one Coalition MP.
Mr Turnbull was all smiles as he arrived at Mr Alexander's victory party.
"It would have been a very special sort of Armageddon if he'd lost the seat last night, so I can understand the relief that's there," Mr Burke told Insiders.
