Federal Opposition Leader Anthony Albanese has described holding the seat of Eden-Monaro as a "fantastic victory".
Labor candidate Kristy McBain claimed victory in winning a tight by-election battle in the NSW seat on Sunday.
She beat Liberal candidate rival Fiona Kotvojs, who was pipped at the last election by Labor's Mike Kelly, who retired due to health issues.
Speaking to reporters on Sunday, Ms McBain said she had secured around 1000 votes more than her closest opponent.
She thanked Dr Kotvojs and the other 12 candidates who ran in Saturday's by-election.
The former mayor of Bega said it was an honour to represent the southeastern NSW seat.
"It has been an election that has been fought on local issues, first and foremost," she said.
She said it was fought on bushfire relief, on COVID-19 and its economic impact on the community and the drought.
"I know there is a lot of work to do," she said.
The Australian Electoral Commission website shows Ms McBain won by 50.8 per cent on a two-party-preferred basis compared Dr Kotvojs on 49.2 per cent.
However, Labor's primary vote declined by 3.1 per cent, while the swing to the Liberals was just over one per cent.
A relieved Mr Albanese congratulated Ms McBain on the win and said she would be a champion for the people of Eden-Monaro.
"We saw the government, of course, throw everything at it, as we would expect them to do," Mr Albanese told reporters in Canberra.
"I have been very proud to campaign over the last eight weeks side-by-side with Kristy McBain.
"I look forward to the big one," he said in reference to the next federal election due in 2022.
The well-regarded Mr Kelly congratulated his successor and was delighted by the attention that has been drawn to Eden-Monaro's issues.
"As painful as leaving has been this has made it all a little bit easier,' he tweeted.
Australian Associated Press