With more than half of votes counted, Imamoglu led by nearly 10 percentage points in the mayoral race in Istanbul, Turkey's largest city, while his Republican People's Party (CHP) retained Ankara and gained nine other mayoral seats in big cities nationwide.
Analysts said Erdogan and his AK Party (AKP) - which have ruled Turkey for more than two decades - fared worse than polls predicted due to soaring inflation, dissatisfied Islamist voters and, in Istanbul, Imamoglu's appeal beyond the CHP's secular base.
"The favour and trust our citizens have in us have indeed been demonstrated," said Imamoglu, 53, a former businessman who entered politics in 2008 and is now seen by analsyts as a potential presidential challenger.
In Ankara, the capital, thousands of supporters gathered into the night waving CHP flags for a speech by CHP Mayor Mansur Yavas, who trounced his AKP challenger in another blow for Erdogan.
Erdogan had campaigned hard ahead of the municipal elections, which analysts described as a gauge of both his support and the opposition's durability. The president's disappointing showing could signal a change in the major emerging economy's divided political landscape.
Hours after voting ended, the president was headed to Ankara from Istanbul to address the nation.
According to 79.77 per cent of ballot boxes opened in Istanbul, Europe's largest city with more than 16 million people, Imamoglu had 50.53 per cent support compared with 40.73 per cent for AKP challenger Murat Kurum, a former minister in Erdogan's national government.
Polls had predicted a tight contest in Istanbul and possible CHP losses across the country.
Yet partial official results reported by state-run Anadolu Agency showed AKP and its main ally giving up mayoralties in 10 big cities including Bursa and Balikesir in the industrialised northwest.
The CHP is leading nationwide by almost one per cent of the votes, a first in 35 years, the results showed.
Mert Arslanalp, assistant professor of political science at Istanbul's Bogazici University, said it was Erdogan's "severest election defeat" since coming to national power in 2002.
"Imamoglu demonstrated he could reach across the deep socio-political divisions that define Turkey's opposition electorate even without their institutional support," he said. "This makes him the most politically competitive rival to Erdogan's regime at the national level."
