Mexican President Felipe Calderon's party lost mid-term congressional elections on Sunday as voters punished the government for a deep economic recession and rampant crime, Reuters reported.
The defeat for the ruling National Action Party, or PAN, complicates Calderon's attempts to push economic reforms through the lower house of Congress where he must rely on the opposition for support.
Calderon's party admitted it had lost to the Institutional Revolutionary Party, or PRI, which led by 8 percentage points in preliminary results.
"We recognize that the PRI will be the main bloc in the new chamber of deputies," said PAN leader German Martinez.
The dire state of Mexico's economy, which is in deep recession due to the downturn in the United States next door, turned voters against Calderon, a dour conservative.
"Investment and exports are falling. It's a mess and it will be a long time before we recover," university professor Enrique Serrano, 51, said as he left a Mexico City polling station.
The peso currency weakened sharply on the news, falling 0.6 percent against the dollar.
Calderon wants to overhaul the energy sector to allow more private investment in the search for oil in the Gulf of Mexico. He also seeks to reform the tax system and labor laws.
But he will have to negotiate with the centrist PRI to push reforms through Congress. The PRI has already watered down reform attempts by Calderon, who has lacked a majority in Congress since he became president in a tight election in 2006.
Calderon is personally popular and voters generally support his war against drug cartels. More than 12,300 people have died since he dispatched the army to battle drug gangs three years ago but Congress has not played a major role in the fight.
But robberies, kidnappings and muggings are a top concern among voters.