With 90 per cent of the votes counted early on Thursday, D66 and Wilders' Freedom Party (PVV) were both projected to take 26 seats in the 150-seat lower house of parliament.
It was a sharp fall for Wilders from a record showing in 2023, while D66 made the biggest gains and almost tripled its seats.
Exit polls and early results had indicated a narrow victory for the progressive D66, with Wilders trailing in second place, but vote counting indicated a slightly stronger showing for the anti-Islam populist.
The shift in the early hours of Thursday is unlikely to alter the composition of the next government coalition.
All major mainstream parties have ruled out governing with Wilders after he brought down the last coalition led by his PVV.
Wilders on Wednesday evening said he was disappointed that his party had lost seats and acknowledged he would likely not be part of the next government, but he vowed to fight on from the opposition.
"Of course we would have liked to win more seats and I regret the loss, but it's not as if we were wiped off the map," he said.
The result instead opens a path for D66 leader Rob Jetten to form a government as the youngest ever prime minister of the Netherlands.
Cheers and chants of "Yes, we can" broke out at the D66 election night celebration as the crowd waved Dutch flags.
"We've shown not only to the Netherlands, but also to the world that it is possible to beat populist and extreme-right movements," Jetten told the crowd.
"Millions of Dutch people today turned a page and said farewell to the politics of negativity, of hate, of endless 'No, we can't'."
The popularity of 38-year-old Jetten surged in the past month as he campaigned on a promise to resolve a housing shortage, invest in education, and tackle immigration concerns.
Wilders, one of Europe's longest-serving populist leaders, is known for his anti-Islam stance and lives under constant protection due to death threats. He had proposed denying all asylum requests - which would violate EU treaties - sending male Ukrainian refugees back to Ukraine, and halting development aid in order to finance energy and health care.
Wilders led his party to a stunning first-place finish in the last election in 2023 and formed an all-conservative coalition, although his partners refused to endorse him as prime minister.
He brought the government down in June over its refusal to adopt his hardline measures.
The Dutch election was seen as a test of whether the far right can expand its reach or whether it has peaked in parts of Europe.
The outcome may suggest there are limits to its enduring appeal.
With 76 seats needed to form a governing coalition in the Netherlands' parliament, at least four parties will be required.
One scenario is a pact including D66, the conservative Christian Democrats, the centre-right VVD, and the Greens-Labour party.
However, building stable coalitions is tough and talks are expected to take months.
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