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The outgoing prime minister and great wartime leader Winston Churchill tendered his resignation immediately.
The landslide victory comes as a major shock to the Conservatives following Mr Churchill's hugely successful term as Britain's war-time coalition leader, during which he mobilised and inspired courage in an entire nation.
Out of 627 seats Labour increased its seats from 164 to 393, giving the party its first independent majority of 159 seats over all other parties.
The Conservatives and their allies secured 213 seats, the Liberals 10 and other parties 11.
Following the announcement of the results this afternoon, Mr Churchill, who has held the positions of Prime Minister, First Lord of the Admiralty and Minister of Defence continuously since May 10, 1940, went to Buckingham Palace to hand in his resignation.
Mr Attlee, 62, was welcomed by the King shortly afterwards and asked to form a new Government.
Throughout the election campaign Mr Churchill had appealed to the country to give his new National Government - formed after the dissolution of the Coalition government in May - a good majority.
But the appeal was rejected by the people of Britain, largely, it is thought, because they believed Labour's promises to implement the Beveridge Report and its plans for creating a welfare state.
In a statement issued from 10 Downing Street tonight Mr Churchill expressed his "profound gratitude for the unflinching, unswerving support" given to him by the people of Britain during the war years.
At a news conference this evening, Mr Attlee promised a new world order and an economic policy to raise the standards of life for people all over the world.
He said: "We are facing a new era and I believe that the voting at this election has shown that the people of Britain are facing that new era with the same courage as they faced the long years of war."
The outgoing prime minister had broken off meetings with the leaders of America and Russia in Potsdam on Wednesday (July 25) to return to Britain for the election results.
It was announced tonight that a proclamation giving Japan an ultimatum to surrender had been signed by Mr Churchill before his departure.
The document, also signed by American President Harry Truman and General Chiang Kai-shek of China, called for the unconditional surrender of all Japanese armed forces or the prospect of "prompt and utter destruction."
The new prime minister, Mr Attlee, is expected to return to the three-Power conference in Berlin to resume diplomatic talks soon.
The Potsdam conference in Berlin was attended by the heads of government from America, Britain and Russia to discuss Europe's recovery following the war.
It was the first time the three had met since the end of the war with Germany.
The conference lasted for 17 days and resulted in a declaration which included detailed proposals on the future control of Germany and the reparations to be exacted from Germany to facilitate Europe's recovery.
Despite losing the General Election, Winston Churchill's reputation as one of this country's greatest war-time leaders was left unscathed.
He remained leader of the opposition until 1951 when he once again became prime-minister at the age of 77.
He resigned in 1955 due to ill-health and died in January 1965.
In 2002 Winston Churchill was named the greatest Briton of all time in a nationwide poll which attracted more than a million votes.
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