Turkish President Recep Tayyip Erdogan declared victory in municipal elections but the Opposition's success in key cities dealt a significant blow to his party's dominance. According to unofficial results, the ruling party lost the capital, Ankara, and the head of Turkey's electoral board said the Opposition was also leading in Istanbul.

Sunday's local elections were widely seen as a test of support for Erdogan as the nation of 81 million people faces a daunting economic recession with double-digit inflation, rising food prices and high unemployment.

Ballot counts were still under way Monday morning in an anxious wait for Istanbul, Turkey's largest city and commercial hub. Both candidates —Ekrem Imamoglu for secular Republican People's Party, or CHP, and former Prime Minister Binali Yildirim for the ruling party— claimed they had won.

Electoral board head Sadi Guven said votes were still being counted and objections taken into account. He said Imamoglu was leading in Istanbul by nearly 28,000 votes at the time of his statement around 0700 GMT.

The Opposition has accused the state-run Anadolu news agency of bias in reporting ballot counts, and the agency's unofficial results for Istanbul were stuck at 98 percent of votes counted for hours.

The mayor's seat in the city of 15 million is hugely important. Erdogan's own ascent to power began there in 1994.

Erdogan's supporters celebrate in Istanbul early on Monday. AP

The main Opposition party winning the race for metropolitan mayor in Ankara marks a symbolic shift. The capital city was held by Erdogan's Justice and Development Party, the AKP, and its Islamic-oriented predecessor for 25 years.

Unofficial results reported by Anadolu showed Mansur Yavas, the candidate of the CHP, winning the top post in Ankara. The AKP still holds a majority of Ankara's 25 districts.

The government had led a hostile campaign against Yavas and his party, accusing him of forgery and tax evasion.

More than 57 million voters were eligible to take part in choosing the mayors of 30 major cities, 51 provincial capitals and 922 districts in Turkey. In big cities, voters cast four ballots, for metropolitan mayor, district mayor, the municipal assembly and a neighborhood administrator.

Despite the setbacks, Erdogan's ruling party and an allied nationalist party still won more than half of the votes across Turkey.

Speaking from the balcony of party headquarters in Ankara early on Monday, where he has for years declared victory, Erdogan said he and his allies had come out first. He said the party would work to understand and fix where they failed.

Erdogan and his wife Emine greet supporters in Ankara early on Monday. AP

Andrew Dawson, heading the Council of Europe's election observation mission, said Monday that they were 'not fully convinced that Turkey currently has the free and fair electoral environment which is necessary for genuinely democratic elections in line with European values and principles.'

He commended the Turkish public for the high turnout rate of 84 percent and called it a 'sign of healthy democratic interest and awareness.'

In predominantly Kurdish provinces, a pro-Kurdish party won seven top mayoral seats but lost some strongholds, including southeastern Sirnak province, to the ruling party.

Since 2016, the government has replaced 95 elected municipal, provincial or district mayors with government-appointed trustees in a crackdown on the Peoples' Democratic Party, or HDP, for alleged links to outlawed Kurdish militants.

The HDP had vowed to win them back. Amid a media blackout and despite significant losses in the region, it regained the municipal mayor in the Kurds' symbolic capital, Diyarbakir. Government officials have previously threatened they won't recognize results if HDP candidates with 'terror' links win.

Supporters of Binali Yildirim , former Prime Minister and AKP mayoral candidate for Istanbul, wave Turkish flags in Istanbul on Sunday. AP

The Council of Europe in its statement acknowledged Turkey's security concerns but said Turkey's definition of terrorism was not consistent with European standards. Dawson called on the Turkish government to respect election results and said, 'we do not accept assertions that assume every HDP mayor is or could be a terrorist or has terrorist connections.'

The secular Opposition also made significant gains in provinces along the Mediterranean, including taking Adana from the nationalists and the resort town of Antalya from the ruling party. It also retained its hold over Izmir, Turkey's third largest city, located on the Aegean Sea. If Imamoglu wins in Istanbul, the opposition will administer the three most populous cities.

A strategic decision by the pro-Kurdish party to sit out critical races in major cities may have contributed to the secular party's increase in votes.

Turkey will also have its first communist mayor, in the eastern province of Tunceli.

Political parties can submit their objections for three days.