The former rebels have taken 12 out of 22 constituencies where vote counting has been completed in the election for Nepal's Constituent Assembly, which will draft a new constitution for the country, election officials said.
Former U.S. President Jimmy Carter, whose Carter Center sent 62 observers to monitor the election, said it indicated a major transition for Nepal.
"If the Maoists do gain a substantial share of power I hope the United States will recognize and do business with the government," Carter said at a news conference in Katmandu.
Carter described the election as one of the "most profoundly important" of the 70 he has witnessed because it marked the end of a decade of political violence and the probable transformation of Nepal from a Hindu kingdom to a democratic republic.
The assembly will write Nepal's new constitution, which is widely expected to do away with Nepal's centuries-old monarchy.
Election official Devendra Parajuli said Prachanda won 23,277 votes - almost twice the total for his closest competitor.
Early results from Thursday's vote indicated that the Communist Party of Nepal (Maoist) - members of which ended a 10-year insurgency in 2006 - could also be set to win control in 61 other constituencies where counting was still going on, the Election Commission said.
The election has been touted as the cornerstone of the 2006 peace deal struck between the government and the Maoists. The agreement followed months of unrest that forced Nepal's king to cede absolute power.
Scattered shootings and clashes that killed two people on election day and eight others in the days leading up to the poll did not deter millions of Nepalis from casting ballots in the Himalayan country's first election in nine years.
Of the 21 constituencies counted by Saturday afternoon, the Maoists had 11 seats while the Nepali Congress and the United Marxist-Leninists secured four each, the commission said.
Another small communist party, the Nepal Workers and Peasants' Party, won two seats.
A complete count of votes in all 240 constituencies was expected to take several weeks.
Members of Nepal's Maoist movement - still considered a terrorist group by the United States - were already predicting victory in the election for the 601-seat Constituent Assembly, which will be responsible for writing Nepal's new constitution.
"We will get a clear majority in the final results," said Hisila Yami, a senior member of the Maoist party and a minister in the coalition government.
"People have chosen us to lead the country," she said. "This is a reflection of the people's desire for a republic that our party has always stood for."
None of the 54 parties vying for seats in the assembly was expected to win a landslide, and with 20,000 voting stations spread across the mountainous country - some a seven-day walk from the nearest paved road - officials have said it could be several weeks before a complete tally is ready.
The Election Commission said that there would be re-polling in at least 60 locations because of voting irregularities, and that the number could rise as election complaints are investigated. Several candidates have claimed their supporters were barred from voting by rival groups and have complained of election fraud.