Howard, US President George W. Bush's closest ally in the Iraq war, conceded defeat in Sydney and admitted it was "very likely" that he also faced the rare humiliation of losing his own electoral seat.
"A few minutes ago I telephoned Mr Rudd and I congratulated him and the Australian Labor Party on a very emphatic victory," Howard told emotional supporters in a concession speech at a Sydney hotel.
Labor's stunning victory, in which it was expected to claim as many as 86 of the parliament's 150 seats, means it now controls the central government and all eight state and territory administrations.
Howard wished the Labor Party leader well and told him that he was inheriting an economy that was the envy of the world.
"This is great democracy and I want to wish Mr Rudd well," said the wily political veteran who dominated his country's politics for more than a decade.
"He assumes the mantle of the 26th prime minister of Australia and I want to say that there is no prouder job a man can