Electoral officials said voter turnout was 62.3%, the lowest in Israel's history and 5.7 percentage points lower than in the 2003 elections.
With 99% of ballots counted, Kadima has won 21.8% or 28 seats, with the centre-left Labour party coming second with 20 seats, a 15.1% share
Under Israel's complex proportional representation, the exact number of seats may change as the final votes are redistributed.
The BBC's Caroline Hawley says Kadima had hoped to win more seats but will feel the result has given them a mandate to begin forming a coalition.
The right-wing former ruling party, Likud, is trailing with just 11 seats - behind the ultra-Orthodox Shas, with 13, and the far-right Yisrael Beitenu party, which proposes forcibly transferring Arab towns inside Israel to Palestinian territory, polling 12.
Likud leader Benjamin Netanyahu admitted they had "suffered a tough blow" but vowed to rebuild the party.
Israel's President Moshe Katsav earlier said the election was "among the most important in the history of our state".
RESULTS - 99% COUNTED
1. Kadima: 28 seats, centrist
2. Labour: 20 seats, centre-left
3. Shas: 13 seats, ultra-orthodox
4. Yisrael Beitenu: 12 seats, Russian emigres, far-right
5. Likud: 11 seats, right-wing
6. National Union-National Religious Party: 9 seats, far-right, pro-settler
7. Gil: 7 seats, right-wing, pensioners
8. United Torah Judaism:6 seats, ultra-orthodox
9. Meretz: 4 seats, left-wing