Vladimir Putin's United Russia party has suffered one of the worst election results of his 12-year rule.
The Russian electorate dealt the Prime Minister a much harsher than expected blow in the parliamentary election, which was widely seen as a referendum on his popularity.
Preliminary results show that his ruling party received 49.5% of the vote - down from 64% in the previous election.
United Russia has told Sky News they expect to nudge up to 53% in official results, which have to be reported before December 19.
Dmitry Medvedev and Vladimir Putin speaking to supporters
With 238 seats in Russia's lower house of parliament, it still holds a majority but the loss of 77 seats is bruising for the country's hard man prime minister, who is priming himself for a presidential comeback next year.
The result means that United Russia now only has a slim 13-seat majority and has lost the constitutional majority of two-thirds needed to pass changes to Russia's constitution.
It is the biggest electoral setback for Mr Putin since he first became president in 1999 and steadied Russia after the chaos of the immediate post-Soviet period.
The Communist party came second with 19.16% of the vote - up from around 12% four years ago - but they have cried foul, saying the vote was illegitimate and they should actually have got twice the number of votes recorded.
United Russia says the result is a good one and changes very little.
Votes being counted in Moscow following the ballot
Election day saw 60.2% of the population turn out to vote - 3% down on the last election.
Claims of election fraud were widespread. Several websites highlighting election violations were blocked on the day of voting only to miraculously start working again when the polls closed.
Independent election monitoring group, Golos, recorded thousands of alleged violations from across Russia.
Its head was detained at a Moscow airport and made to hand over her laptop with the authorities claim had illegal material on it.
Central Moscow was put on lockdown during the vote because opposition protestors had promised to take their anger to the streets.
Thousands of police officers lined the streets and the area surrounding the red square was closed off to the public.
Sky's Moscow correspondent Amanda Walker
Mr Putin had accused foreign forces of 'meddling' in the Russian vote.
Restrictions on foreign media and Kremlin critics are only likely to tighten over the next three months as his presidential campaign starts in earnest.
Mr Putin and Mr Medvedev, who took up the presidency in 2008 when Mr Putin had to step down after serving the maximum two consecutive terms, briefly appeared at a subdued meeting at United Russia's headquarters.
Mr Medvedev declared that the party was prepared to forge alliances on certain issues to secure backing for legislation.
Mr Putin added: "This is an optimal result which reflects the real situation in the country. Based on this result we can guarantee stable development of our country."
But political analyst Andrei Piontkovsky said: "It's the beginning of the end. It shows a loss of prestige for the party and the country's leaders."