At 7.15pm on Saturday, the high-profile GP was predicted to defeat Liberal candidate Dave Sharma in the by-election to replace Malcolm Turnbull.
With votes still being counted, the ABC election computer was projecting Dr Phelps to hold 57 per cent of the two-party preferred vote on the back of a 23 per cent swing against the Liberals.
Mr Turnbull quit parliament in August shortly after fellow Liberals turned on his leadership in a failed bid to install Peter Dutton but later endorsed Mr Morrison.
“This is a bad night for the Liberal Party,” Liberal MP Trent Zimmerman told the ABC on Saturday.
Another Liberal MP Craig Laundy, who supported Mr Turnbull’s leadership, said he now expected an “internal struggle” in the party about its future direction.
But party members must resist a shift to the Right under Mr Morrison, he said.
“I don’t think that has played well in Wentworth,” he told Sky News, adding that issues such as climate change were commonly mentioned by voters at poll booths.
Mr Morrison will have to seek the support of Dr Phelps or another crossbench member in order to be assured of confidence on the floor of parliament.
Mr Zimmerman said the government already had guarantees of confidence and supply from crossbench members.
Dr Phelps earlier described talk of her toppling the Morrison government as “pathetic scaremongering”.
Labor deputy leader Tanya Plibersek said the size of the swing was “historic”.
“This shows the values of Scott Morrison are not the values of Wentworth,” she said.
She said Labor, whose candidate Tim Murray was sitting on 11.3 per cent of the primary vote, had “realistic expectations” about his chances in the blue-ribbon Liberal seat.
Mr Turnbull’s son Alex tweeted that it was a “great day for Australian democracy”. The entire Liberal Party function room booed him when it was shown on television screens.
Attending Dr Phelps’ function, her daughter Jaime Chambers said she was excited but nervous.
“I’ve never been so proud, she’s done so many incredible things in her life and in her career and this has got to take the cake.”