The Liberal-National coalition holds a one-seat advantage in parliament, but a huge swing in a crucial Sydney by-election means it could soon be relegated to a minority government.
Independent candidate Kerryn Phelps amassed a huge lead over Liberal rival Dave Sharma in the early counting of the votes in the affluent division of Wentworth, which saw the favourite concede defeat.
Her advantage has since narrowed substantially to 50.6%, but the popular local doctor is still expected to hold on and claim victory in what is usually considered a safe Liberal seat.
It had been held by former prime minister Malcolm Turnbull until his controversial ousting in the summer, which also saw him resign from parliament to trigger the by-election.
Mr Turnbull had held the seat with a margin of 18%.
His successor as prime minister was in a bullish mood following the closing of the gap between Dr Phelps and Mr Sharma, but analysts are confident that the former will hold on.
On the prospect of an early election – which by law is due by 18 May 2019 – the prime minister told reporters: “Australian people expect governments to serve their term.
“We are elected to serve our term and that is what we are going to do.”
He added that he was prepared to work with independent politicians to ensure the government could continue to operate, with the lack of a majority making it harder to push through legislation.
It may still be two weeks until a win for Dr Phelps – who is the first woman and LGBT person to be elected president of the Australian Medical Association – is confirmed, as postal votes are still coming in.
Her lead stood at just under 900 votes on Sunday, and it must drop to below 100 to automatically trigger a recount.
The 60-year-old campaigned with the rights of refugees at the top of her agenda.
She told voters that if she won, she would immediately work to have refugee children removed from Australian detention camps on the Pacific island nation of Nauru.
There have been reports that they are suffering from serious health problems and Dr Phelps believes they should be moved over to Australia.