Mr Murphy, a former chair of Labour Friends of Israel, will now have to face tough questions about his prominent position in the party.
After the result was announced, he promised to continue as leader, telling the crowd at the count: “The fightback starts tomorrow morning.”
In a graceful speech, he also said: “It has been a real pleasure to represent our constituency for the last five years. Kirsten, I wholeheartedly congratulate you and wish you every success in your parliamentary career”.
The new MP, who raised £7,000 for the campaign through online crowdfunding, caused controversy by sending a letter to Conservative voters days before the election entitled: “Please lend me your vote”.
In the message, Ms Oswald asked constituents who favoured the Tories to back her because she “understands your values, your concerns and your priorities.”