David Farley swept to victory in the sprawling southern NSW electorate of Farrer on Saturday night, ending the coalition's 77-year reign in the federal seat.
With more than 80 per cent of ballots counted, Mr Farley had claimed more than 57 per cent of the two-candidate-preferred vote to comfortably beat independent Michelle Milthorpe.
"One Nation has reached the end of its beginning. We're going through the ceiling from here," he declared on Saturday night to a room that erupted in cheers and applause.
It is One Nation's first federal lower-house election victory since the party was founded by Pauline Hanson in 1997 and she had a message for the major parties.
"We're coming after those other seats," Ms Hanson said.
Former Nationals leader turned One Nation MP Barnaby Joyce also suggested the political earthquake would spread.
"Western Sydney here we come," he said.
"Australians, they hear the rumble coming from the bush and then it arrives in the city as a bushfire."
The by-election was triggered when long-time MP Sussan Ley resigned after being ousted as Liberal leader by Angus Taylor in February.
Support for the coalition crumbled, down to 12 per cent of the primary vote for the Liberals and less than 10 per cent for the Nationals.
Ms Ley secured more than 43 per cent of the primary vote when she won the seat a year earlier.
The Liberals must take their medicine and learn hard lessons, Liberal leader Angus Taylor said.
"For too long, we have been a party of convenience and not of conviction," he said.
Deputy Liberal leader Jane Hume conceded trust with voters had been broken due to the coalition splitting twice and said it would take time to rebuild.
But Ms Ley said it would be wrong to attribute the result to the coalition ruptures and urged the Liberal leadership to accept the loss with humility as voters "never get it wrong".
She parroted Mr Taylor's catchcry of "change or die", which he deployed after February's leadership spill.
"Three months later, the result in Farrer demonstrates that statement to be far truer today than it ever was then," Ms Ley said.
Labor chose not to contest the by-election.
Treasurer Jim Chalmers described the result as a "bloodbath" and said it showed the coalition would have to join One Nation to compete.
"There's no future coalition government, I think, without One Nation in it," he told ABC News on Sunday.
Farrer comprises more than 126,560 square kilometres and fills out the southwest corner of NSW.
Its largest population centre is Albury, which sits on the NSW-Victoria border.
The race, which became a two-way competition between a minor party and an independent, signals a broader shift in voting away from the major parties.
In the 1960s, more than 70 per cent of Australians would vote for the same party in each election.
By 2025, that number fell to just one in three, according to the Australian Election Study.
"The Australian electorate has become increasingly volatile," the study's chief investigator, Griffith University senior lecturer Sarah Cameron, told AAP.
"Most people aren't feeling close to the major political parties and they're increasingly willing to switch votes from election to election."
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