Monday's election left the veteran right-winger in prime position to form a government and end a year of political deadlock, after similar votes in April and September proved inconclusive.
The central election committee said it had counted 90 percent of the vote, with breakdowns of the result in the media showing Netanyahu's Likud party with 36 seats in Israel's 120-member parliament.
That would mark the party's best-ever result under Netanyahu, Israel's longest-serving prime minister and its first to be indicted in office.
Netanyahu's bloc, which includes ultra-Orthodox Jewish parties, is likely still one or two votes short of a majority, but his party spokesman said it was confident of luring defectors.
Likud's main challenger, the centrist Blue and White party, was projected to win 32 seats.
Counting its centre-left allies as well as the mainly Arab Joint List alliance, the anti-Netanyahu camp was expected to control 54 to 55 seats.
While there remains no guarantee that Netanyahu can form a coalition, he hailed Monday's election as a "giant" success.
"This is the most important victory of my life," he told supporters in Tel Aviv where people danced, sang and shouted "Bibi, king of Israel," using the premier's nickname.
Netanyahu campaigned on his tough position towards the Palestinians and on expanding Jewish settlements in the occupied West Bank.
He also pledged to annex the Jordan Valley, a key part of the West Bank that Palestinian see as crucial for their future state, if he won.
Chief Palestinian negotiator Saeb Erekat said the exit polls showed that "settlement, annexation and apartheid had won".
Looming trial
Blue and White's leader, ex-military chief Benny Gantz, admitted "disappointment" with the result.
But he stressed that regardless of the final tally Netanyahu is still due to go on trial on March 17 after being charged with bribery, fraud and breach of trust.
"In two weeks, he will be in court," Gantz said.
While Netanyahu will likely be tapped by President Reuven Rivlin to form a government, he has no immediate path to a 61-seat majority.
The projections indicate that the secular, nationalist Yisrael Beiteinu party won six or seven seats and may again be able to play kingmaker, the same position it was in following the April and September votes.
Party leader Avigdor Lieberman served as defence minister in a previous Netanyahu government and his support would easily put Likud over the crucial 61-seat line.
But after the September vote Lieberman said he would only join a government of national unity -- ruling out cooperation with the ultra-Orthodox parties allied to Netanyahu and the Arab camp that backed Gantz.
"There is no choice but to wait for the final results and only then conduct a situation assessment," Lieberman said after the exit polls were released.
(AFP
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