Mr Gyurcsany called the confidence vote to gauge the support he had to press on with unpopular austerity measures after losing local polls on Sunday to the conservative opposition.
As expected, he won the confidence vote with 207 in favour and 165 against, backed by his leftist coalition of Socialists and Liberals who enjoy a comfortable majority in parliament.
It was the first time a vote of confidence had been used since the country's transition from communism to democracy in 1989.
But the vote was also an attempt by Mr Gyurcsany to put behind him a weeks-old political crisis, which was sparked by a leaked recording in which he said the government "lied morning, night and evening" about the economy ahead of his re-election in April.
The revelation set off two weeks of demonstrations which degenerated over three nights into the worst riots Hungary has seen since it emerged from communism.
Moral crisis
After the confidence vote, opposition leader Viktor Orban said Mr Gyurcsany had created a "moral crisis" in Hungary and continued to demand his ouster at a rally of some 50,000 right-wing supporters outside parliament.
He called on supporters to protest in front of parliament between 5:00 and 6:00 pm daily until the prime minister resigned.
But in a surprise statement, Mr Orban said that "in the interest of the country's stability" he would no longer demand early elections, in what analysts said was an admission of flagging support for his effort to oust the prime minister.
"Orban essentially retreated, and this opens the way for the government to go back to running the country," political analyst Krisztian Szabados said.
"We were disappointed because (Orban) did not put strong pressure on the government," said 18-year old Katalin, a protestor standing beside her mother who was draped in a Hungarian flag.
Analysts also noted that while tens of thousands of flag-waving supporters showed up at the protest, it was a far cry from past election rallies in which hundreds of thousands attended.
Friday's protest quickly broke up, with only some 3,000 demonstrators remaining in front of parliament by early evening.