In one of the tightest election battles in decades, the Social Democrats took 35.7 percent of the vote, giving them 68 seats in the 183-member parliament.
Mr Schuessel's People's Party (OeVP), who has run the country for six years in a controversial alliance with the far right, has won 34.2 percent of the vote, leaving it with 66 seats.
The result was announced by the Interior Ministry with all but absentee ballots counted.
Social Democrat leader Alfred Gusenbauer appeared on his way to be the new chancellor.
But there are multiple scenarios over what form a future government might take, with two far-right parties holding a potential kingmaker role.
One possibility would be a grand coalition joining the Social Democrats and the People's Party, with Mr Gusenbauer as chancellor.
Another would see Gusenbauer leading an alliance between his party and the environmental Greens party, which took 10.5 percent of the vote.
But observers also pointed out that Mr Schuessel might have the numbers to form his own coalition with the two right-wing parties.
"I think there are only two real possibilities at this point, a grand coalition or Schuessel repeating what he did six years ago with an alliance with the far right," University of Vienna professor Walter Manoschek told AFP.
Mr Schuessel had finished behind the Social Democrats in the general elections of 1999 that led him to form his ruling alliance in 2000 with far-right nationalist Joerg Haider.
Mr Haider's Alliance for Austria's Future party appeared to have scraped into parliament Sunday with 4.2 percent of the vote.
Freedom Party vote
The extreme-right Freedom Party had taken over the hardline anti-immigrant positions that Mr Haider advocated in his pre-coalition days.
The Freedom Party was a big winner with 11.1 percent of the vote, making it the third most popular party.
Most analysts expected that Mr Haider's party's days in government as a junior coalition partner in Mr Schuessel's administration were effectively ended, especially since there is bad blood among the rightist groupings.
Mr Haider, however, said he was open to any alliance that would stop a grand left-right coalition from forming.
Mr Gusenbauer said: "If we don't get a majority with the Greens, there is only one option left, an alliance with the OeVP," although he indicated that he was still awaiting the final result with some 400,000 absentee ballots yet to be tallied.
"Ultimately, there is justice," Mr Gusenbauer, 46, said on national television of his party's victory.
Voter participation on Sunday was at 74.22 percent the lowest in a general election in Austria since World War II.