The Conservatives have lost the North Shropshire by-election, a shock result that puts more pressure on Boris Johnson after a difficult few weeks for the prime minister.
Mrs Morgan polled 17,957 votes, ahead of Tory candidate Neil Shastri-Hurst on 12,032, giving her a majority of 5,925.
Labour’s Ben Wood was a distant third with 3,686 votes.
In her victory speech, the Lib Dems’ 13th MP said voters in North Shropshire have “spoken on behalf of the British people” and told Mr Johnson “loudly and clearly” that “the party is over”.
“Your government, run on lies and bluster, will be held accountable. It will be scrutinised, it will be challenged and it can and will be defeated,” she said.
Liberal Democrat leader Sir Ed Davey described the result as a “watershed moment in our politics” that “offers hope to people around the country that a brighter future is possible”.
“Millions of people are fed up with Boris Johnson and his failure to provide leadership throughout the pandemic and last night the voters of North Shropshire spoke for all of them.”
Mr Shastri-Hurst described the result as “disappointing”.
“We’ve run a positive campaign here, I’m extremely proud of the work that everybody’s done. Of course it’s a disappointing result for us,” he told reporters when asked if the PM was to blame.
Asked if the party needs to change, he said: “We’re 11 years into a Conservative Government, by-elections are never an easy thing to do.”
The result marks another remarkable by-election success for the Lib Dems, after the party overturned a healthy Tory majority in Chesham and Amersham back in June.
Mr Paterson won the seat for the Conservatives, which has been blue since its creation in the 1980s, with a majority of almost 23,000.
But the former cabinet minister quit in November after being found to have broken lobbying rules with his £110,000-a-year private sector consultancy work.
He was facing the prospect of a 30-day Commons suspension for the breach, but the PM instructed Tory MPs to vote in favour of a motion ignoring this.
However, the move sparked a furious backlash and the government was forced into a swift U-turn, with Mr Paterson quitting shortly afterwards.
It marked the start of a tumultuous period for Mr Johnson that culminated this week with 100 of his own MPs rebelling over COVID passes, by far the biggest mutiny of his premiership.
There have also been allegations of rule-breaking over numerous Christmas gatherings last year at a time of heightened COVID restrictions, further scrutiny of the refurbishment of the PM’s Downing Street flat and questions about his leadership more generally amid Labour taking the lead in a number of opinion polls.
The North Shropshire result is another headache for Mr Johnson and comes as his government battles the Omicron variant of COVID-19 and weighs whether to impose further restrictions amid its continuing spread.