With 100% of the votes counted, Kadima had 28 seats in the 120-member parliament, just one more than the Likud party. However, gains by right-wing parties mean that Likud, led by former prime minister Benjamin Netanyahu, may have a better chance of forming a government.
"The people of Israel have chosen Kadima. We will finish our task, and do our duty by forming a national unity government," Livni told her supporters.
"With God's help, I will lead the next government," Netanyahu told supporters.
Despite the results of the polls, it is unclear if Livni could muster the 61-seat coalition to form a government and the foreign minister appealed to Netanyahu to join a national unity government that she would head.
Israeli President Shimon Peres will now have to decide on which party has a better chance of forming a coalition.
The two parties have major differences on the peace process, with Livni favoring swift movement towards the two states solution and Netanyahu, who has called for the destruction of Hamas, much more hard-line.
The early parliamentary polls were forced by the resignation of former prime minister Ehud Olmert in a corruption scandal and the failure of Livni, who took over as leader of Kadima, to form a coalition government.
