Meanwhile, the Conservative Party of Canada raised eyebrows by suggesting that new Liberal Leader Justin Trudeau should be blamed for dragging down the party's turnout.
Jones, who won the night with 48.2 per cent of the 12,059 votes cast, told supporters that negative campaigning from the Tory camp backfired.
"People are very tired of the fear mongering. They were tired of the attack ads. They were tired of the lies," Jones said late Monday night.
Jones, a former provincial Liberal leader who was undefeated in a career in Newfoundland and Labrador's legislature that stretched more than 16 years, said voters responded to what she had to offer.
"They wanted to have someone who was going to stand up for them every day, and it's quite obvious that they saw that in me," she told reporters.
Penashue was forced to quit his seat and cabinet post in March amid an ongoing Elections Canada investigation that found he had accepted illegal campaign contributions in 2011, and had overspent his campaign limit. He was only the second Tory in history to ever win the riding.
Penashue had 32.5 per cent of the vote. NDP candidate Harry Borlase polled 18.8 per cent, while Libertarian candidate Norman Andrews was a distant fourth.
Conservatives blame Trudeau in statement
In an unusual statement after Monday night's results were counted, the Conservatives said the results suggest Trudeau actually hurt Jones's performance in the byelection — the first seat that the Conservatives have lost since forming the government in 2006.
"As we know, majority governments do not usually win byelections. In fact, Liberals have won the riding of Labrador in every election in history except for two, so we are not surprised with these results," Fred DeLorey, the party's director of communications said in a statement.
"What is surprising is the collapse of the Liberal support during this byelection. When this byelection was called the Liberals had a 43-point lead in the polls," DeLory wrote.
"Since electing Justin Trudeau as leader and having him personally campaign there, they have dropped 20 points in Labrador. That's a significant drop in only a few weeks," he said.
"Labradorians were able to see firsthand how Justin Trudeau is in over his head."
Trudeau had spent a few days in Labrador campaigning with Jones, who quit her provincial seat several weeks ago to run federally.
For his part, Trudeau said he was proud Jones's victory, which he says sets up the Liberals for a political comeback.
"This is just the beginning. Together with Canadians, we will build a thriving middle class and an even greater country," Trudeau said in a statement.
"We have demonstrated that the Liberal message of hope and hard work is resonating, and that Canadians are tired of the Conservatives’ politics of cynicism, division and fear."
Not a national metaphor
While the Labrador byelection was watched closely in Ottawa and particularly by opponents of the Harper government, local voters and pundits felt that the race was not necessarily a metaphor for the national political landscape.
"Resist the urge to make this about Trudeau, folks. It ain't," said CBC provincial affairs reporter David Cochrane. "This is about Yvonne Jones vs. Peter Penashue."
Jones, though, credited Trudeau for bringing a boost to her campaign, and told cheering supporters that "he wanted to congratulate the people of Labrador" for sending a Liberal back to Ottawa.
Jones says the Conservative campaign strategy, which included a promise to put Penashue back in cabinet to fight for jobs at the local air base as well as high-profile ads mocking Trudeau, did not work.
Federal, provincial politicians react
Monday night's byelection was called after Penashue quit as MP in March after repaying $30,000 in compensation for "ineligible contributions" he accepted during the 2011 election.
During an announcement in Summerside, P.E.I., on Tuesday, Prime Minister Stephen Harper said Penashue did the right thing in resigning and running again despite the outcome.
"Peter Penashue knew full well that this would be difficult, at the same time he was determined to do the right thing and therefore he made that decision and we want to thank him for his service to Canadians," Harper said in response to a reporter's question.
Government House Leader Peter Van Loan called Penashue's defeat "a real loss for the people of Labrador, a real loss for the Government of Canada."
"He was a very thoughtful voice around the cabinet table who contributed a great deal, represented his people well. He was not a career politician. He was different than some others who spend a lot of time in politics and his contribution was a very strong one," Van Loan said Tuesday during an announcement in Toronto.
Penashue's defeat has meant that the prime minister will have to find another cabinet representative for Newfoundland and Labrador, a Conservative MP who is not from that province.
N.L. Premier Kathy Dunderdale admitted that it will be more difficult for the province to deal with Ottawa when there is no MP from the province "in the tent."
"It is difficult because there are things that are particularly important to the people of Newfoundland and Labrador, which may not have the same rating on the priority list of the country and therefore the prime minister's priority list as it does to us," said Dunderdale. "So there is always that push and pull."
Dunderdale also congratulated Jones, who was Dunderdale's former foe when she was the province's Liberal leader, on her win.
Penashue's future uncertain
Penashue told reporters he is not sure what he will do next. He said, though, that he respects the choice that Labradorians have made.
"People have to live with the decisions that they've made. The offer was a cabinet table and people chose to be in the Opposition," he said.
Penashue said he is not sure which issues cost him the job, although he blamed CBC News reports on his spending for having "defined me very negatively." He was referring to a series of CBC News reports on his campaign spending since last summer.
"I tried to change that but the damage had already been done. I could say, you know there was that issue, that issue. People make up their minds and people make up their choices."
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