Republican Gov. Christie Todd Whitman, a surprise winner as New Jersey's first female governor four years ago, struggled to avoid being upset Tuesday.
With 78 percent of precincts reporting, Democrat Jim McGreevey had 853,842 votes, or 47 percent, while Whitman had 843,794 votes, 46 percent.
Libertarian Murray Sabrin, a 50-year-old college professor making his first run for office, had 84,947 votes, or 5 percent.
Elected in 1993, Whitman upset the Democratic incumbent, Jim Florio, by promising to cut the state income tax 30 percent over three years.
Whitman did it in two years, thrusting her into the national spotlight. She was mentioned as a potential vice presidential candidate and acted as co-host of the party's national convention last year.
In a statewide exit poll Tuesday, voters said New Jersey's economy was in good shape, and their personal finances have stayed the same or improved under Whitman.
The poll also found nearly nine in 10 said the issue of auto insurance was important in deciding whether to return Whitman to office, a topic trumpeted by McGreevey, 40, a state senator and mayor of Woodbridge.
And 95 percent said state and local taxes were important in their choice.
Whitman supporters at a Plainsboro hotel tried to remain optimistic hours after the polls closed, but grim faces reflected the challenger's lead.
"She's tried very hard and obviously it's not working all that well," said Senate President Donald DiFrancesco.