The Bharatiya Janata Party (BJP) candidate Kapil Mishra lost from the Model Town constituency by over 11,000 votes.
A video of Mishra chanting the inflammatory slogan "desh ke gaddaron ko", which translates to "traitors of the country", surfaced on the internet at a pro-CAA rally in December last year.
Aam Aadmi Party's (AAP) Akhilesh Pati Tripathi won and Congress's Akanksha Ola finished third.
Indian news agency ANI reported that Mishra congratulated AAP and Chief Minister Arvind Kejriwal, saying, "It means we have somewhere failed to connect with the people of Delhi."
Tripathi, on the other hand, called it a victory of development and people of Delhi.
"It is a reply to people who wanted to divide the country and disturb communal harmony. It is the victory of Arvind Kejriwal's dream of a beautiful Delhi," he said to ANI.
In December last year, Mishra led a march in Delhi in support of the Citizenship Amendment Act (CAA) and a video of him shouting the inflammatory slogan surfaced on social media.
Though the Delhi BJP had distanced itself from Mishra's march and the resultant controversy at the time, several party leaders were later caught on camera encouraging the same slogan.
BJP leader and Union minister Anurag Thakur encouraged it at an election rally in Delhi, after which he was banned for 72 hours from campaigning in the national capital.
The Election Commission had also banned Mishra from campaigning for 48 hours on 25 January after his communal tweets.
Mishra was the Water Resource Minister in the Arvind Kejriwal government, but he was sacked from the Cabinet in May 2017. Later, he was also suspended from the party's primary membership after accusing the Chief Minister and AAP leader Satyendra Jain of corruption.
He joined the BJP in August last year. He was disqualified as an MLA under the anti-defection law after campaigning for the BJP during the 2019 Lok Sabha elections.
Mishra was elected from the Karawalnagar seat in the last election.
Tripathi had won the Model Town seat in 2015 by over 16,000 votes.