President Mikhail Saakashvili on Tuesday conceded that his party lost Georgia's parliamentary election, defying the opposition's expectations that he would cling to power at all costs and preserving his legacy as a pro-Western leader who brought democracy to the former Soviet republic.

Saakashvili said the opposition Georgian Dream coalition led by billionaire businessman and philanthropist Bidzina Ivanishvili -- who made his fortune in Russia and until recently was little known in his homeland -- now has the right to form a government.

The opposition victory puts Ivanishvili in place to become prime minister. His antagonistic relationship with Saakashvili, who will remain president for another year, suggests that Georgian politics will be stormy.

Ivanishvili immediately went on the attack. Speaking at a televised news conference, he said most of the president's widely praised reforms were a joke and his ideology "was all based on lies." He ended by calling for Saakashvili to step down.

Saakashvili's concession of defeat, even before the election results were released, also preserved calm on the emotionally charged streets of the capital, Tbilisi, where support for Georgian Dream is strongest. Opposition supporters had boisterously celebrated throughout the night. If they had felt deprived of victory on Tuesday, the mood very quickly could have turned hostile.

During his nearly nine years in power, Saakashvili has pushed through economic and political reforms and attracted international investment that has led to dramatic economic growth. Poverty and unemployment, however, remain painfully high.

Georgians have turned against Saakashvili in recent years. Many accuse his party -- which has controlled not only the government and Parliament but also the courts and prosecutor's office -- of exercising authoritarian powers.

Saakashvili's campaign was also hit hard by the release two weeks ago of shocking videos showing prisoners in a Tbilisi jail being beaten and sodomized. The government moved quickly to stem the anger, replacing Cabinet ministers blamed for the abuse and arresting prison staff, but many saw the videos as illustrating the excesses of his government.

"It is clear from the preliminary results of the parliamentary election that the Georgian Dream coalition has secured a majority," Saakashvili said in a televised address. "This means that the parliamentary majority should form the next government and I, as president, within the framework of the constitution, will help make it possible for Parliament to begin its work, choose a speaker and also form a new government."

Saakashvili will remain the leader of the country until his second and last term ends next October. Under a constitutional reform that goes into effect after he leaves office, many of the president's powers will be transferred to the prime minister, who is chosen by Parliament.

This is the first time in Georgia's post-Soviet history that a government will be changed by the ballot box rather than through revolution. Saakashvili came to power through the peaceful Rose Revolution after a rigged parliamentary vote in 2003.

He said Tuesday there were deep differences between his United National Movement and the diverse opposition coalition.

"We think their views are completely wrong," he said. "But democracy works through the majority of the Georgian people making a decision, and we respect this very much."

International election monitors expressed concern over the harsh rhetoric during the campaign and isolated cases of violence, but overall praised the election.

"The process has shown a healthy respect for fundamental freedoms at the heart of democratic elections, and we expect the final count will reflect the choice of the voters," said Tonino Picula, who led the Organization for Security and Cooperation in Europe observer mission.

Ivanishvili said the international observers were responsible for preventing vote rigging, and Saakashvili should be thankful to the opposition that "he was able in the end to save his reputation" as a democratic leader.

Ivanishvili confirmed his commitment to pursue Saakashvili's goals of making Georgia an integral part of Europe and member of NATO, while adding he will seek to restore the trade and diplomatic ties with Russia that were severed when the two countries fought a brief war in 2008. Georgian producers of wine, mineral water, vegetables and fruits had depended on exports to Russia, and the closing of these markets hurt them deeply.

Saakashvili has accused Ivanishvili of planning to put Georgia back under Russian domination. Ivanishvili denies that.

Before Saakashvili conceded, Ivanishvili met with two U.S. senators to assure them of his desire to maintain the close relationship with Washington forged under Saakashvili.

"We talked about the future, how to develop our relationship with our big friend (the United States), and how to develop democracy in Georgia," he said after meeting with Republican Sen. James Risch of Idaho and Democratic Sen. Jeanne Shaheen of New Hampshire, both members of the Foreign Relations Committee.

At the news conference later in the day, he again sneered at Saakashvili, who he said deceived the United States. "They thought he was building democracy," Ivanishvili said. "We have done a good deed for the United States, we have saved democracy in Georgia."

In Russia, where the election was being watched closely, the government welcomed the defeat of Saakashvili.

"We very much hope and count on the changes that will take place in Georgia and will positively influence the improvement of our ties," said Valentina Matvienko, the Kremlin-loyal speaker of Parliament's upper house.

Alexei Malashenko, a scholar at the Carnegie Moscow Center, was more cautious.

"For a while, ties will soften, there will be a prospect of improvement, but an exchange of embassies is not possible yet," he said.