LABOUR today said it had exceeded expectations by holding on to 26 of Wales's 40 seats.
The Tories finished with eight seats - up five on the previous election - having dislodged Labour MPs in four target constituencies.
The Conservatives also ousted one of the most colourful characters in Westminster by beating Liberal Democrat Lembit Opik in Montgomeryshire.
That result left the Lib Dems with three seats, the same number as Plaid Cymru.
Plaid leader Ieuan Wyn Jones braced his party for a difficult night soon after counting began, saying the nationalists had been "squeezed’’ in an election campaign dominated by the prime ministerial debates between the leaders of the three big UK parties.
Labour was cheered by early results when it saw off challenges from Plaid in Ynys Mon and Llanelli, and from the Conservatives in Vale of Clwyd.
The party also recaptured the once rock-solid seat of Blaenau Gwent, which went independent in a by-election in 2006.
Labour held the Lib Dem target seats of Wrexham, Swansea West and Newport East, but with reduced majorities.
However, the Lib Dems beat off a challenge from Plaid in Ceredigion, significantly increasing their majority to 8,324.
There was a recount in the final seat to declare, Cardiff North, where the Conservatives unseated Labour's Julie Morgan, wife of former First Minister Rhodri, by just 194 votes.
Welsh Secretary Peter Hain said: "Labour's result in Wales has exceeded expectations and confounded our critics and opponents.
"Although I'm saddened to have lost valued colleagues, we have bounced back from a truly dreadful performance in last year's European elections and disappointing results in the 2007 Assembly elections and 2008 local elections.
"We have now established a good platform in the most difficult of circumstances to build for the future.
"Despite their gains, the Tories fell well short of their 'rugby 15' expectations, and Labour's vote held up in Wales.
"There is a clear anti-Tory majority in Wales and our party has an obligation to try to form a partnership government which allows the progressive majority in the new parliament to triumph over the reactionary Tories.’’ Plaid leader Mr Jones, the Deputy First Minister, said: "There is no doubt that our hopes of gaining additional seats were dashed during the campaign as a result of the portrayal of this election as a three party contest in Wales by the UK media.
"Although we welcomed the televised debates we knew from the outset that the decision to exclude Plaid and the SNP from that important UK-wide media platform would put us at a disadvantage and that has proven to be the case.’’ In a statement, the Welsh Lib Dems said: "A substantial increase in the Welsh Liberal Democrat majority in Ceredigion was matched by significant swings to the party in former Labour heartland seats on election night.
"The Montgomeryshire result was, of course, disappointing. A close contest between two personalities swung decisively in the last few days.’’