Harmony, which draws most of its support from the country’s sizeable ethnic Russian minority, won 20 percent of the vote to become the largest party for the second time.
The result has set alarm bells ringing throughout the European Union and NATO which see the Baltic nation as a key ally in their increasingly tense relations with Vladimir Putin.
Suspicion of the left-leaning party’s links with the Kremlin has kept it sidelined from power in the past but it is now expected to enter talks to form a coalition government with two other populist parties – the KPV LV and the New Conservatives which took 27 percent between them.
Harmony will hold its 24 seats in the 100-seat parliament, with the New Conservatives on 16 and KPV LV on 15.
Nils Ushakovs, Harmony chairman and mayor of the capital Riga, said: “No coalition combination is possible without Harmony that would appear able and stable.”
European Council President Donald Tusk warned Russia was a major threat to the unity of the European Union.
He said the Latvian result provided a clear signal Russia’s strategy of attempting to influence the direction of politics in Europe was working.
He said: “Our problem is Russia, which is undermining whatever it can undermine in Europe.
“I can provide numerous examples to prove that Russians will not refrain from any means to weaken European unity.”
He said he was “anxious” about the result in Latvia and warned it could “be a turning point for that region — a moment which was planned in the Kremlin and not in Europe”.
Mr Tusk pointed to “very clear traces of Russia’s engagement” in the Brexit referendum campaign and Catalonia’s conflict with Madrid.
He denied having an “anti-Russian obsession,” but said: “If there is a nation somewhere whose main political priority is to disintegrate Europe, this certainly is Russia.”
Latvians, fed up with corruption and weak democracy in the Baltic country of 2 million, punished the ruling three-party coalition, which lost almost half of its votes.
The fragmented result makes it hard for prime minister Maris Kucinskis, whose Liepaja Party won 10 per cent of the vote, to retain power.
Mr Kucinskis warned the emergence of a coalition including Harmony would represent a “radical change of Latvia’s position towards the European Union and towards our security matters which, I think, is very dangerous”.
Latvia, one of three former Soviet states wedged against the Baltic Sea, has a population of two million and shares a 167-mile border with Russia.
Along with Lithuania and Estonia, it joined the EU and Nato in 2004 and sits on the front line of spiralling tensions between the Kremlin and the West. Nato has more than 1,000 troops stationed in Latvia, with similar numbers in Estonia and Lithuania.
Harmony also won the most parliamentary seats four years ago but was shut out of power when other parties refused to include it in coalition talks because of its ties with Russia.
This time it has attempted to play down its Kremlin connections, ending an official agreement with President Vladimir Putin’s ruling United Russia party last year.
It has also sought to rebrand itself as a social democratic party that supports the EU and Nato but critics say that it remains loyal to Moscow and could act as Russia’s “Trojan horse” within the EU.