Threatening to challenge the result in the Supreme Court, Mr Yanukovich said “I will never recognise such a defeat, because the constitution and human rights were violated.”
Earlier, international observers praised the conduct of Sunday’s re-run vote, held after the initial round was annulled because of ballot-rigging.
With nearly all votes counted, official figures show the pro-Western opposition leader held an unbeatable lead, equivalent to 2.3 million votes.
Mr Yushchenko, who wants Ukraine to push through liberal reforms, won 52 percent of the vote against Mr Yanukovich’s 44 percent.
He declared victory while the counting was still in its early stages, and addressed tens of thousands of his supporters, wearing their distinctive orange colours, in Kiev’s central Independence Square.
“We were independent for 14 years, today we became free,” he said. “Today, in Ukraine, a new political year has begun. This is the beginning of a new epoch, the beginning of a new great democracy.”
He’s promised to end rampant graft, reform the ex-Soviet state’s damaged economy and align Ukraine with the West.
This, in turn, has fanned concerns in Russia it will lose influence over a region where it has held sway for 300 years.
The election outcome suggests Mr Yushchenko will have a big enough margin of victory to carry out a major overhaul of key institutions.
But Mr Yanukovich charged the opposition camp with cheating in the election and claimed to have proof of his accusations.
He claimed 4.8 million people in Ukraine didn’t vote due to complications and confusion arising from the new election law adopted after the contested November 21st ballot.
He also lashed out on the 12,000 international election observers who descended in record numbers to monitor the vote.
“As for observers, I think observers must always be guided by the facts. If they don’t know the facts they are not observers. Only the blind couldn’t see how many violations occurred during the election,” he said.
The Organisation for Security and Cooperation in Europe (OSCE), the lead international institution monitoring the vote, said the election proved Ukraine had moved “substantially closer” to meeting international democratic standards.
“That is not to say the election was perfect, Bruce George, head of the OSCE observer mission, said, adding: “It wasn’t.”
The poll was widely praised in the West, with US Secretary of State Colin Powell calling it “a historic moment for democracy.”
European Union Commissioner for External Relations Benita Ferrero-Waldner said the poll “opens the way toward strengthened cooperation between the EU and Ukraine.”
NATO Secretary General Jaap de Hoop Scheffer said the election was “relevant to NATO’s political relationship with Ukraine” and its aim of promoting regional stability.
Many Ukrainians, going back to the polls for the third time in less than two months, said they wanted to end the country’s bitter political crisis.
In the earlier rounds, Mr Yanukovich was backed by outgoing President Leonid Kuchma and Russian President Vladimir Putin.
But last week Mr Putin said he would accept, and work with, whoever won.
Allegations of vote-rigging in the original ballot were just part of a campaign marred by alleged dirty tricks.
Doctors recently confirmed Mr Yushchenko, who developed a disfiguring skin condition in September, had been poisoned with dioxin.
He suggested he was poisoned at a dinner with heads of the Ukrainian security service (SBU), an allegation denied by the SBU.
And in another twist to the story, Ukraine’s transport minister has been found dead with a gunshot wound.
58-year-old minister Heorhiy Kirpa had been a strong and vocal supporter of Prime Minister Yanukovich.
Opposition figures had claimed Mr Kirpa, whom they regarded as one of the most influential figures within the current government, of supplying extra trains to ferry his party’s supporters to vote at multiple polling stations in last month’s poll.
Officials wouldn’t confirm local media speculation Mr Kirpa’s death at his country house just outside the capital Kiev was a suicide.
But one of his deputies told a local TV station his death was connected to financial difficulties within his ministry.