Results showed that Kausea Natano, who has backed long-standing relations with Taipei, failed to win one of two seats up for grabs on the main atoll of Funafuti.
Tuvalu is one of just 12 states around the world, including the Holy See, that still formally recognise Taiwan.
Neighbouring Nauru abruptly severed diplomatic ties in favour of China earlier this month and rumours have swirled that Tuvalu could be next.
There are a little more than 6,000 registered voters in the country of around 11,500 people, and ballots are still coming in from far-flung islands.
With no formal political parties, the process of MPs selecting a prime minister and potentially changing government policies could be slow.
But ahead of election day, Natano's finance minister, Seve Paeniu, floated the idea of reviewing Taiwan ties.
Paeniu won his election race uncontested and is among the favourites to take the island country's top job.
Taiwan's ambassador to Tuvalu Andrew Lin dismissed the idea of a potential switch, recently telling AFP the two allies enjoyed a "very long-term friendship" that would endure beyond the election.
But China has been methodically poaching Taiwan's Pacific allies, convincing Solomon Islands and Kiribati to switch recognition in 2019 before Nauru did the same.
"The drivers are economic, not ideological," said Anna Powles a Pacific security expert at New Zealand's Massey University.
"Beijing offers economic and development opportunities that Pacific states find hard to refuse when there are often no alternatives."
China claims democratic, self-ruled Taiwan as part of its territory and has never ruled out using force to seize it one day.
- Security implications -
Tuvalu's looming leadership change also throws into doubt a recent climate and security treaty with Australia.
The deal saw Canberra offer refuge to Tuvaluans threatened by climate change.
It also offered Australia a say in any defence pacts Tuvalu signs with other countries -- effectively blocking a future security deal with China.
Another former prime minister, Enele Sopoaga, who won reelection and is expected to seek a top job, has proposed scrapping that treaty.
Australia was shocked in 2022 when the neighbouring Solomon Islands secretly signed a defence pact with Beijing that would allow the deployment of Chinese forces on the islands.
Since the signing of that agreement, uniformed Chinese police officers have become a regular sight in the Pacific nation.
On Saturday, Australian Foreign Minister Penny Wong congratulated Tuvalu on a "successful election", while offering the prospect of further cooperation.
"We look forward to working with the new Government," she said. "Australia and Tuvalu are longstanding friends, sharing an interest in building a stronger, more resilient and more peaceful Pacific."
The United Nations says Tuvalu is "extremely vulnerable" to the effects of climate change, with most of its landmass less than five metres (16 feet) above sea level.
Most of it is predicted to be underwater -- at least some of the time -- by 2100.
Around 40 percent of the main atoll Funafuti already gets submerged during periodic "king" tides that wash away crops like taro and cassava.
Two of the atolls represented on its flag of 11 stars have already disappeared.
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