David Farley became One Nation's first candidate to be elected to the House of Representatives, breaking more than 70 years of coalition rule in the southern NSW seat on Saturday.
The victory has raised the prospect of One Nation taking other regional seats and targeting outer suburban electorates, which could force the decimated coalition to seek the support of Senator Pauline Hanson's party in a bid to form government.
Nationals Leader Matt Canavan remained optimistic the coalition could reclaim the regional electorate, as well as heading off the threat of One Nation in other electorates.
"This is like a two-legged final, perhaps we played an away match on the weekend, where it was difficult circumstances at a by-election. Next time, we might be on a home-ground advantage when the choice of government is up for grabs," he told reporters in Canberra on Monday.
"In terms of lessons, I think it's very different than what we'll see at a federal election."
While Senator Hanson said she would work with Liberals and Nationals to form a government, she said her party would not be part of a formal coalition.
"I will give them supply and confidence ... they can form a government with my numbers, I'm quite happy to do that," she told Sydney radio station 2GB on Monday.
"I don't want ministerial positions, because I'm not going to be the tail on the dog ... Â because (the Liberals) have done that with the National Party."
Senator Hanson said she felt vindicated by the Farrer by-election result.
"I've been pillaged and ridiculed and put down, and you know, everything thrown at me," she said.
Senator Canavan ruled out any coalition agreement with One Nation in order to form a government.
"One Nation itself this morning was saying they have no interest in joining a coalition with us, and the feeling is mutual," he said.
The Liberal primary vote tanked to 12.4 per cent, more than 30 percentage points down on the share secured a year earlier by Sussan Ley before her ousting as party leader and subsequent resignation.
But senior Liberals have rejected calls to enter into a coalition with One Nation to ensure their party's longevity.
Shadow treasurer Tim Wilson on Sunday did not rule out a possible coalition with One Nation, saying it was up to the Australian people to decide who they want to vote for.
But the following day, he said he had never supported the idea.
"The reality is, the leader of that party has already declared that she won't form a coalition with us and I have no interest in forming a coalition with them," he told reporters in Canberra.
One Nation MP Barnaby Joyce said the party was looking to replicate its success in western Sydney and was already speaking to potential candidates.
"What they've seen is that the polling is not an aberration," he told Seven's Sunrise program.
"It's now been validated by both South Australia and Farrer. There is a strong following out there."
Prime Minister Anthony Albanese said the coalition's loss in Farrer was not surprising.
"It's pretty clear that the traditional coalition parties, the Liberal Party and the National Party, don't really stand for anything anymore," he told Cairns radio station 4CA.
"I'm not sure that One Nation's appeal will go beyond the sort of seat that we've seen and where they traditionally have done OK."
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