Greece's conservative government managed to hang on to power this weekend, despite the widespread criticism of its handling of the forest fires that tore through parts of the country this summer.

Prime Minister Costas Karamanlis was declared the winner late Sunday evening, after securing 41.8 percent of the votes in polling that day, while the head of the opposition socialists, George Papandreou, admitted defeat.

The conservative New Democracy party (ND) saw its majority slashed from 165 seats to 152 in the 300-seat parliament. It will now have to rely on a wafer-thin majority to bring about a range of much-needed reforms. The ND has pledged to overhaul Greece's pensions system and to carry out a series of privatizations aimed at improving competitiveness.

Jubilant supporters hit the streets of Athens on Sunday evening to celebrate the victory, waving flags, blaring horns and setting off firecrackers. The scenes were in stark contrast to the silent demonstrations only a few weeks ago . Then, thousands of Athenians, many wearing black, marched through the streets to voice their disgust at the way the government had handled the forest fires  that killed 65 people and devastated countless villages.

When Karamanlis originally called the snap election back in August, before the fires, he was confident of success. Since his victory in the 2004 election, the economy has grown by an average of 4.4 percent annually, the budget deficit has been slashed and 200,000 jobs have been created. But the country still faces an uphill battle to increase per capita GDP, currently the second lowest in the European Union after Portugal, and to further reduce unemployment, which remains above the EU average.

Public outcry over the fires debacle meant that the election campaign was hard fought. The Socialists (PASOK), however, failed to capitalize on public disaffection and only won just over 38 percent of the vote, giving them 102 seats in the new parliament -- the party's worst showing in 30 years. Party leader George Papandreou now faces a likely leadership challenge. Leading party member Evangelos Venizelos has already put himself forward as a potential leader. "I declare that I am present," he said Monday.

The far-right LAOS party also won 3.8 percent, getting past the 3 percent hurdle to secure 10 seats. It is the first far-right party to make it to parliament since the end of the right-wing dictatorship in 1974.