Ned Lamont, a political unknown who rallied public resistance to the war in Iraq, won the party's nomination by about 52 per cent to Lieberman's 48 per cent, with 80 per cent of the vote counted. Lamont will run on the Democratic ticket in November for the six-year seat.
Lieberman, who lost as vice presidential candidate with Democrat Al Gore in 2000, is the incumbent senator. He conceded the election to Lamont in a broadcast speech.
But he said he will run as an independent if he loses the nomination - a move that makes Democratic party strategists uneasy, since it could split the Democratic vote in favour of the Republican candidate.
Lieberman strongly backed US President George W Bush's decision to invade Iraq in March 2003. In recent days, Lieberman cited his record of criticizing the Bush administration for mistakes in Iraq while maintaining his vote to support the war was correct.
Lieberman has also argued that he worked hard against Bush's domestic policies.
Republicans still hold sway in both houses of Congress, but Democrats are banking on increasing public criticism of the war in Iraq to help erode that strength in November's mid-term elections.
But the Democrats themselves have been split on the issue of the war, wary of being smeared as anti-patriotic by Republicans.
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