The resounding win makes Key the first New Zealand leader able to govern in his own right since proportional voting was introduced in 1996 and means his centre-right National Party has increased its vote in all three elections he has contested.
"I'm ecstatic, it's a great night," the 53-year-old former currency trader said after a result that confounded opinion poll predictions of a tight race.
"It was a tough campaign but I think that people could see the country was on the right direction and they rewarded us. I'm just very grateful," he added.
Labour leader David Cunliffe, facing questions over his future, said it was time to rebuild the centre-left party, not lay blame.
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"I'm certainly happy to take my share of blame for this result, but I'm getting consistent feedback from people that they want me to muscle up, to carry on and drive through the change that we need," he said.
The Internet-Mana party, bankrolled by flamboyant tech mogul Kim Dotcom in a bid to oust Key, did not win a single seat after attracting only 1.26 percent of the vote, with the German national blaming himself for the failure.
Support for the Greens slipped 1.1 percent to 10.0 percent, well short of the 15 percent it was targeting while the populist New Zealand First Party (NZF) increased its number of seats from 7 to 11.
NZF had been tipped as a potential kingmaker in a hung parliament but such was Key's dominance that he does not need to negotiate to retain power.