Swedish Social Democratic Prime Minister Stefan Lofven has invited the opposition to talks after both the left-wing and center-right blocs failed to obtain a majority in Sunday's election. 

The Scandinavian country was on course for a hung parliament after an election that saw support for the nationalist Sweden Democrats surge, as one of Europe's most liberal nations turns right amid fears over immigration.

Far-right parties have made spectacular gains throughout Europe in recent years amid growing anxiety over national identity and the effects of globalization and immigration following armed conflict in the Middle East and North Africa.

In Sweden, an influx of 163,000 asylum seekers in 2015, the most in Europe in relation to the country's population of 10 million, has polarized voters and fractured the long-standing political consensus.

With almost all districts having reported, the ruling center-left Social Democrats and Greens and their Left Party parliamentary allies had 40.6 percent of the vote, while the opposition center-right Alliance were at 40.3 percent.

"It is clear that no one has received a majority, so it's natural to have a cross-bloc cooperation," Lofven told supporters, after his bloc appeared to hold a one-seat lead over the center-right opposition with votes in 99.8 percent of districts counted. "The voters have made their choice, now it's up to all of us decent parties to wait for the final result and then negotiate (and) cooperate to move Sweden forward in a responsible way."

The Sweden Democrats, a party with roots in the white supremacist fringe, had 17.6 percent, up from 12.9 percent in the last election four years ago.

While the result looked set to fall short of leader Jimmie Akesson's predictions of 20 percent of the vote or more, he told a party rally it was nevertheless the winner of the election.

"We will gain huge influence over what happens in Sweden during the coming weeks, months and years," Akesson told party colleagues.

Akesson hopes his party, which wants Sweden to leave the European Union and put a freeze on immigration, can play a decisive role in negotiations over forming a government.

He called on Ulf Kristersson, the center-right Alliance's candidate for the premiership, to choose between seeking support from the Sweden Democrats for an Alliance government or to accept another four years of Social Democrat prime minister, Stefan Lofven.

Kristersson called on Lofven to resign, but rebuffed Akesson.

"We have been completely clear during the whole election. The Alliance will not govern or discuss how to form a government with the Sweden Democrats," he said.

The Sweden Democrats, shunned by all the other parties since entering parliament in 2010, have promised to sink any cabinet that refuses to give them a say in policy, particularly on immigration.

Lofven said he would not resign and called for cross-party cooperation.

The election will add to concerns in Brussels as the European Union enters campaign mode ahead of the European Parliament election in May, which could give more voice to eurosceptic groups and thwart efforts at closer EU integration.

The record levels of those seeking asylum in 2015 magnified worries about a welfare system in Sweden that many voters already believe is in crisis, even though refugee numbers have fallen sharply since then.

Lengthening queues for critical operations, shortages of doctors and teachers and the failures of police to deal with inner-city gang violence have shaken faith in the "Swedish model," built on a promise of comprehensive welfare and social inclusion.

Akesson had labelled the vote a choice between immigration and welfare in a campaign that was unusually antagonistic.

Lofven could hold on to power unless the Alliance accepts some kind of support from the Sweden Democrats, at a likely cost of the populists having more say over immigration policy.

But he would need to overcome decades of acrimony between the two blocs and get support from parties on the center-right, something they have ruled out.

(Top image: Sweden Democrats party leader Jimmie Akesson speaks on election evening at Kristallen restaurant in central Stockholm, Sweden September 9, 2018. /VCG Photo)