It is the third general election since 2012 in Lesotho, where years of political in-fighting have undermined attempts to tackle dire poverty and unemployment.
Long queues formed outside polling stations, with many voters wearing traditional Basotho blankets to ward off the winter chill.
The snap election was announced in March when Prime Minister Pakalitha Mosisili, 72, lost a no-confidence vote after his seven-party coalition government broke up less than two years after it was formed.
Critics accuse the national army of favouring Mosisili, and small numbers of soldiers were seen by AFP near many ballot stations.
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Thabane, 77, drew large crowds to his campaign rallies and is seen as the narrow favourite.
Protests could break out if Mosisili is defeated and he refuses to concede power "as his attitude and actions suggest he might," said analyst Peter Fabricius of the Pretoria-based Institute for Security Studies.
In the capital Maseru, Thabane's All Basotho Congress (ABC) and Mosisili's Democratic Congress (DC) party have competed for votes via giant billboards and posters.
"It is not likely that a single party will garner a majority of votes," political analyst Mafa Sejanamane, of the National University of Lesotho, told AFP.
"The urban vote is largely set to go to the ABC. The vote in rural areas is now likely to be shared between the DC and its splinter, the Alliance of Democrats.