Prime Minister Luís Montenegro, whose centre-right coalition won the 18 May election, has ruled out making a deal with Chega. He will instead move to form a new minority government.
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Far-right Chega party has become Portugal's main opposition party, following a final tally of votes from the 18 May election.
After the initial round of counting, the party was tied on 58 seats with the Socialist Party (PS), which received a slightly higher share of the vote.
However, Chega — which means "Enough" in Portuguese — secured two more seats after overseas voting was taken into account, while the PS stayed on 58.
“This is a profound change in the Portuguese political system," Chega leader André Ventura told supporters after his party had overtaken the PS.
The election results broke with the country's political status quo, as centre-right and centre-left parties have typically alternated between government and opposition.
Prime Minister Luís Montenegro's centre-right Democratic Alliance secured 91 seats of the National Assembly's 230 seats, making it the largest bloc in parliament.
Montenegro, who has ruled out working with Chega, said he would form a new minority government.
The mid-May election — the third national vote in as many years — was called after Montenegro lost a confidence vote in parliament, following concerns about the prime minister's business dealings. He denies any wrongdoing.
Chega's rise coincides with far-right gains across Europe, with parties including Alternative for Germany (AfD) now in the political mainstream.
The former fringe party, which campaigned under the slogan “Save Portugal”, took only one seat when it first competed in elections in 2019. Since then, its hardline stance against immigration has seen it surge in popularity.