Lib Dems see city majority slashed.
The opposition party took six seats from the Lib Dems and one from an independent, securing 39.4% of the vote to the Lib Dems' 38.1%.
Of the 27 seats contested in the city's 26 wards Labour took 16 and the Lib Dems 11.
The closest contest was in Westerhope, where Labour's Brian Hunter beat Lib Dem Neil Hamilton by 185 votes. His win put the final nail in the coffin for the ruling party's presence in Westerhope, after the ward's other two councillors defected from the Lib Dems to become independents last year. In Elswick, first-time Labour candidate Habib Rahman saw off serving independent councillor Derek Malcolm with a 1,500 vote majority over the Lib Dems.
Michael Burke, 20, became Labour's youngest ever councillor in the city in the Denton ward, taking one of the two seats up for grabs there, with the other held by the Lib Dems. Labour husband and wife Helen McStravick and Phil Risk took seats in Blakelaw and Fenham, deposing Lib Dem councillors Bill Shardt and PJ Morrissey.
Labour also took seats from the Lib Dems in Walkergate and Lemington, to give them 34 seats in the council chamber overall, with the Lib Dems on 42 and two independents.
Labour leader Coun Nick Forbes said: "These results show that people in Newcastle have come home to Labour and put us within striking distance of taking back control of the council."
Lib Dem leader Coun John Shipley said: "Today's result is disappointing, but it reflects the General Election turnout and the fact that many people decided to vote on national issues, not local issues in the local election. We have been a very successful administration and we still have a majority over Labour."