Livni, who as Israel's foreign minister heads the US-backed peace talks with Palestinians, won the ruling Kadima party primary late Wednesday night to succeed Ehud Olmert, who was facing public uproar over graft charges.
Livni will be the first woman prime minister of Israel since Golda Meir, who held the office from 1969-74.
Livni defeated her close rival former chief of staff and transport minister Shaul Mofaz by a narrow margin of 479 votes (2 per cent), belying predictions of her landslide victory.
Israeli TV channels had earlier predicted that the foreign minister, regarded as Israel's most powerful woman, would vanquish her rival by a margin of at least 10 per cent.
Meanwhile, the beleaguered Prime Minister Ehud Olmert last evening called onLivni and congratulated her on the landmark victory.
Olmert wished her 'good luck' and assured of his 'full cooperation in passing on the leadership in case she forms a coalition'.
The elections to choose a party successor became necessary following public uproar against Olmert over a series of corruption charges that may lead to his indictment for bribery, fraud and breach of trust. Olmert has vowed to step down after the election of new party leader.
Image: Israeli foreign minister Tzipi Livni
Text: Agencies | Photograph: Uriel Sinai/Getty Images