President Yanukovych's party appears to be heading for a majority
International observers say Ukraine's election has been a backward step for democracy, marred by "the abuse of power and the excessive role of money".
The statement from the regional security body OSCE came as early results pointed to a win for President Viktor Yanukovych's Party of Regions.
Opposition leader and ex-prime minister Yulia Tymoshenko remains in prison.
Mrs Tymoshenko has announced a hunger strike in protest at alleged vote rigging and is only drinking water.
"One should not have to visit a prison to hear from leading political figures," the OSCE said.
"Considering the abuse of power, and the excessive role of money in this election, democratic progress appears to have reversed in Ukraine," said Walburga Habsburg Douglas, a Swedish MP who headed the OSCE mission.
The criticism contrasted sharply with the international observers' conclusions on Ukraine's February 2010 presidential election, judged to have been transparent, unbiased and an "impressive display" of democracy.
That election was won by Mr Yanukovych, defeating Mrs Tymoshenko.
After Sunday's parliamentary election his Party of Regions has more than 36%, compared to 21% for Mrs Tymoshenko's opposition bloc, with one-third of party list votes counted.
It appears Mr Yanukovych's party is also ahead in single mandate districts, which form half of all the seats.
The opposition has alleged widespread voting irregularities.
Two international observer missions gave much more positive assessments than the OSCE's.
The 56 members of the European Academy for Elections Observation, most of whom are European Parliament members, said the vote was held "in compliance with democratic norms". They called it "a good election, not perfect but clearly acceptable".
Observers from the ex-Soviet countries in the Commonwealth of Independent States (CIS) called the election "transparent and democratic".
'Abuse of resources'
From her prison cell Yulia Tymoshenko has accused Mr Yanukovych of trying to establish a dictatorship
Western governments have condemned the jailing of Mrs Tymoshenko, whose coalition is called the United Opposition Fatherland bloc. She was given a seven-year jail sentence last year for abuse of power, and voted from her prison cell.
Her bloc says its own parallel vote count confirms that Mr Yanukovych's party is in the lead, but with a smaller percentage of votes than the party claims.
The complicated electoral system means a final result is some way off.
A prominent ally of Mrs Tymoshenko, former interior minister Yuri Lutsenko, is also in jail. He was sentenced in February 2012 to four years in prison for abuse of office and embezzlement.
The OSCE said the election was characterised by "the lack of a level playing field, caused primarily by the abuse of administrative resources, lack of transparency of campaign and party financing, and lack of balanced media coverage".
"Certain aspects of the pre-election period constituted a step backwards compared with recent national elections," they added.
It was the biggest election observer mission the OSCE has ever deployed - more than 800 observers, from nearly 40 different countries.
The OSCE said election day was generally calm and "voters had a choice between distinct parties". Its view of the voting and counting was "mostly positive", but result tabulation "lacked transparency", it said.
Correspondents say the signs are that the Party of Regions will get a simple majority in the 450-member parliament.
Officials said the election had passed off smoothly, with a turnout of some 45% - about average for Ukraine.
Early results indicated the Communists - traditional allies of Mr Yanukovych - were in third place with about 15%.
The new party of world heavyweight boxing champion Vitali Klitschko, called Udar (Punch), was on about 13%.
The ultra-nationalist Svoboda (Freedom) party was also poised to surpass the 5% threshold necessary to get seats in parliament. It was polling 8%, according to the early results.
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