UPDATE: LABOR MP Darren Cheeseman is claiming victory in Corangamite but Liberal Sarah Henderson is not yet conceding defeat.
Mr Cheeseman is hanging on to a 742-vote lead and is claiming victory with what he says is just another 700 to 800 votes to be counted in the seat.
It would be the first time in the 109-year history of the seat that a Labor candidate has won it in two consecutive elections.
"We believe our lead is too great for the Liberal Party to pull back in so we are absolutely in a position to claim that we have been able to win the seat,'' Mr Cheeseman told AAP.
"It is a very significant for the party nationally, keeping us in a position where we can do a deal with the independents to form a minority government.''
He said the nature of the seat was very similar to those of the three independents who are pressuring both major parties who want to form government to get the best deals for their electorates.
"I think we have a very strong suite of policies that we took to the election, like the National Broadband Network and health and hospital reform which is terrific for Corangamite and fantastic for the independent seats as well,'' he said.
Ms Henderson, a former ABC current affairs presenter and corporate lawyer, said in a statement that it was still mathematically possible for her to win the seat.
"While it appears that Mr Cheeseman will hold the seat, the outcome will not be known until the last couple of thousand votes are counted,'' Ms Henderson said.
"We closed the gap again on Monday and it is still mathematically possible for the Liberal Party to win Corangamite.''
She said there had been a small swing to the Liberals with a strong primary vote of 45 per cent compared with Labor's 39.5 per cent.
There is no counting in the seat today.
The south-west Victorian seat is the last to be decided in the 2010 federal election.
At the close of counting last night, Labor incumbent Darren Cheeseman was leading Liberal challenger Sarah Henderson by 742 votes after distribution of preferences, having clawed back almost 200 votes from Labor's lead yesterday.
Mr Cheeseman currently holds 50.4 per cent of the two-party-preferred vote, with more than 94 per cent of potential votes counted.
The final result may not be known until the end of the week, with legislation requiring 13 days after election day to be allowed for postal votes to come in.
If Labor wins Corangamite, the final seat tally is likely to be 73 for the coalition, 72 for Labor, four independents and one Australian Greens MP.
One coalition MP - WA Nationals MP Tony Crook - has declared he will sit on the cross-benches, reducing the Labor-coalition split to 72-all if Labor takes Corangamite.
