U.S. Republican presidential candidate Ted Cruz speaks, with his wife Heidi Cruz by his side, after winning at his Iowa caucus night rally in Des Moines, Iowa, February 1, 2016. [Photo/Agencies]

DES MOINES, Iowa - U.S. Senator Ted Cruz soundly defeated billionaire Donald Trump in Iowa's Republican nominating contest on Monday, upending the party's presidential race and creating a three-way competition with establishment candidate Senator Marco Rubio.

A conservative lawmaker from Texas, Cruz won the first state Republican contest with 28 percent of the vote in Iowa compared to 24 percent for businessman Trump. Rubio, a U.S. senator from Florida, came in third with 23 percent, making a stronger-than-expected finish.

On the Democratic side, former Secretary of State Hillary Clinton and U.S. Senator Bernie Sanders of Vermont came in deadlocked, both receiving roughly 50 percent in a race that was too close to call. Sanders, a self-described democratic socialist, declared the result a "virtual tie."

Cruz's win and Rubio's strong showing could dent the momentum for Trump, whose candidacy has alarmed the Republican establishment and been marked by controversies ranging from his calls to ban Muslims temporarily from entering the United States to promising to build a wall on the U.S.-Mexican border.

"Tonight is a victory for courageous conservatives across Iowa and all across this great nation," Cruz, 45, said during a victory speech lasting more than 30 minutes.

An uncharacteristically humbled Trump, 69, congratulated Cruz and said he still expected to win the Republican nomination. Opinion polls show Trump leading nationally and in New Hampshire, which holds the next nominating contest.

"I'm just honored," Trump said.

Unusually large crowds poured into schools, churches and other venues for the so-called caucuses, in which voters gather together to select a candidate.

Cruz's well established get-out-the-vote effort helped overcome the enthusiasm from large crowds that have shown up for Trump's rallies. Trump skipped the last Republican debate before the caucus because of a dispute with host FOX News. A Trump adviser said his second-place finish was expected.

Iowa has held the first contest in the country since the early 1970s, giving it extra weight in the electoral process that can translate into momentum for winning candidates.

Rubio, 44, may benefit from that momentum as much as Cruz, who was buoyed by evangelical support and thanked God for his win. The Florida lawmaker established himself as the mainstream alternative to the two front-running rivals.

"Rubio has staying power. He weathered $30 million in negative ads and late deciders broke his way due to his upbeat and optimistic close," said Republican strategist Scott Reed.