Unofficial results suggest his Pakistan Muslim League has won easily, though he has reportedly opened talks with independents to guarantee a majority.

He has already been congratulated by Indian Prime Minister Manmohan Singh.

EU observers report that incidents of violence did not deter voters.

Mr Sharif is set to become prime minister for the third time.

Former cricketer Imran Khan, whose Movement for Justice Party (PTI) is in a close fight for second place, has promised to provide genuine opposition.Analysts say Mr Sharif, 63, is in a far stronger position than the outgoing Pakistan People's Party (PPP) which led a weak coalition, often on the verge of collapse.

The PPP of late Prime Minister Benazir Bhutto was badly beaten in the election. It was one of several secular parties unable to campaign freely due to Taliban attacks.

Pakistani media say Mr Sharif's PML-N has so far captured at least 125 seats with the PTI and the PPP on around 30 each.

Analysts said the PML-N was likely to win around 130 seats and should be able to make up the required majority of 137 with support from independents and small parties.

Once it achieves a majority, Mr Sharif's party would be allocated most of 70 other parliamentary seats reserved for women and non-Muslim minorities.An election commission spokesman said turnout had been around 60%. In 2008 it was 44%.

The EU's election observer mission in Pakistan has issued its report, saying 64 people died on polling day itself. It said violence had distorted the electoral process in those areas affected.

But the mission added that at 90% of the 600 polling stations monitored, the conduct of the election was satisfactory or good.

On the whole, it said, there was a strong commitment by candidates and parties to the democratic process.

"The turnout in defiance of the threats against the process was an extraordinary vote of confidence in democracy itself," European Parliament member Richard Howitt told a news conference in Islamabad.Shares rally

The election appears to have paved the way for the first transition from one elected government to another in a country prone to military takeovers.

The Karachi stock exchange hit a record high on the expectation of a Sharif-led government. He is seen as favouring the free market and deregulation.

Ishaq Dar, a senator, has been chosen to serve as finance minister in the new administration. He held the same post in Mr Sharif's second government in 1998 and 1999 and again in 2008.

Mr Sharif - who was toppled in a military coup in 1999 and spent years in exile - held talks on Sunday on forming a government.

Imran Khan, still bedridden after a fall at a campaign rally, said the election would boost Pakistan's young democracy."We are now moving towards democracy. I congratulate the nation on the numbers in which they turned out to vote," he said.

But Mr Khan added that his party was collecting evidence of alleged vote-rigging.

President Obama congratulated Pakistan on successfully completing the election and said he looked forward to working with the government that emerged.

He welcomed the "historic, peaceful and transparent transfer of civilian power" but stopped short of naming Mr Sharif.During his election campaign, Mr Sharif said he would end Pakistan's involvement in the US-led war on terror.

However, he declined to say whether he would call a halt to military operations against the Taliban and al-Qaeda.

The Indian prime minister said he hoped for a "new course" in relations between India and Pakistan.

"PM extends his congratulations to Mr Nawaz Sharif and his party for their emphatic victory in Pakistan's elections," he said on his Twitter account.

He invited Mr Sharif to go to India "at a mutually convenient time".

Afghan President Hamid Karzai said he hoped for co-operation to root out what he called terrorist sanctuaries.

Both Pakistan and Afghanistan are engaged in a long battle with Taliban Islamist militants.

The triangular relationship between Pakistan, Afghanistan and the US will be tested more than ever as Nato withdraws combat forces from Afghanistan by the end of next year, says the BBC's Mike Wooldridge in Islamabad.

At home, Nawaz Sharif's government will be equally tested in tackling Pakistan's severe shortages of power which damage the economy and hold back job creation, says our correspondent.

In what is seen as another sign of the acute challenges facing the new government, a bomb has gone off in the south-western city of Quetta, killing at least five people.

A suicide bomber drove a car packed with explosives into the wall of the official residence of the police chief of Balochistan province, Mushtaq Shukhera.

Most of those killed are reported to be police, but one child also died.

Mr Shukhera was not among the 60 injured in the explosion, which left a large crater and was heard across Quetta. No group has claimed responsibility for the attack.

Balochistan suffers from separatist violence and sectarian conflict between Sunni and Shia Muslims.