"Development has won, good governance has won," Modi said after the city's ex-leader -- a key opposition figurehead to the premier -- was confirmed as having lost his seat.
Modi's Bharatiya Janata Party (BJP) is in government in the national parliament but has not controlled the local legislature in the capital Delhi since 1998, so it is a symbolic and strategically important victory.
"We will leave no stone unturned in ensuring the overall development of Delhi and making the lives of residents better," Modi said in a post on social media.
Arvind Kejriwal lost his seat to Modi's BJP, reflecting wider damaging losses by the Aam Aadmi Party (AAP).
Kejriwal's AAP had governed the sprawling megacity of more than 30 million people for most of the past decade.
"We accept the verdict and congratulate the BJP," Kejriwal said in a video statement.
Chanting BJP supporters danced for joy outside its New Delhi headquarters as vote results from Wednesday's election were counted, waving flags and posters of Modi.
Counting is in the last stages and the BJP has already secured a stunning two-thirds of the 70-seat assembly, having won 47 seats, according to the election commission. It is tipped to win at least one more seat.
BJP's Parvesh Sahib Singh, who is widely tipped to be the capital's next chief minister, defeated Kejriwal.
"Delhi has chosen development," Singh said in his victory statement.
Singh, 47, comes from a family of politicians, and his father served as Delhi's chief minister in the early 1990s.
A former national lawmaker, Singh courted controversy in 2022 when he appeared to call for a "total boycott" of Muslims, although he did not explicitly refer to the community by name.
"Our victory is a sign of the people's faith in Prime Minister Modi's vision of progress," interior minister and BJP stalwart Amit Shah said in a statement.
"The Delhi mandate shows that people can't be misled with lies every time."
- 'Very strong position' -
Kejriwal, who rode to power as an anti-corruption crusader a decade ago, spent several months behind bars last year over accusations his party took kickbacks in exchange for liquor licences, along with several fellow party leaders.
He has denied wrongdoing and characterised the charges as a political witch hunt by Modi's government.
He was one of the key pillars of an opposition bloc formed ahead of India's general elections last year, when the BJP suffered significant losses despite holding on to power.
Kejriwal's defeat in his Delhi stronghold puts the BJP "back in a very strong position", said Rahul Verma of the Centre for Policy Research think tank in New Delhi.
"Now it seems what happened in the general elections was a temporary lapse," Verma said. "And it has put AAP in a difficult position going ahead."
Despite hectic weeks-long campaigning, little was said about Delhi's crippling air pollution crisis, which smothers the city for months in hazardous fumes.
New Delhi is regularly ranked the worst capital in the world for choking smog, which often surges as much as 60 times the World Health Organization's recommended daily maximum.
Years of piecemeal government initiatives have failed to measurably address the problem, with the smog blamed for thousands of premature deaths annually and particularly affecting the health of children and the elderly.
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