The Denison MP, who negotiated separately to the other three independents, declared on Thursday that Labor had won him over with promises to tackle problem gambling and to boost hospitals.
Labor now has 74 members on its side, after Australian Greens MP Adam Bandt signed up on Wednesday.
To form minority government, the ALP needs two of the three other independents who are yet to make up their minds.
In Labor's favour is the fact that at least one independent, Tony Windsor, has reservations about trusting the coalition after holes were found in its election promise costings.
Mr Wilkie won $100 million and possibly more to rebuild the Royal Hobart Hospital and a commitment to force the states to introduce a uniform smart-card system on poker machines if they won't volunteer.
Opposition Leader Tony Abbott had agreed to gaming reform, but hadn't detailed his promise, and had gone further on the hospital, offering $1 billion.
But Mr Wilkie said he had more confidence in Prime Minister Julia Gillard, and urged the other independents to get on board.
"I hope that they follow me," he told reporters in Canberra.
"I want a Labor government. For all its weaknesses and faults, I think it would be the best government out of the two for the next three years."
Hours before Mr Wilkie's decision, the coalition was on the back foot as it went into critical talks with Mr Windsor and the other independents Rob Oakeshott and Bob Katter.
The three were meeting shadow cabinet in Canberra after their inquiries with Treasury found between $7 billion and $11 billion in discrepancies in coalition costings.
An apparent Treasury leak to the media meant the coalition didn't trust it to scrutinise the figures before the polls, handing them instead to a private firm.
The coalition downplayed Treasury's queries as mere differences of opinion, with Mr Abbott arguing the independents had more to consider than the costings quibble.
"There are a whole lot of issues in play here, and at times an arcane argument about costings is by no means the most important," he told reporters in Canberra.
But Mr Windsor admitted his suspicions were raised by the costings saga.
"One of (the) things that we have to establish is trust in what they're actually saying," he told ABC Television.
Ms Gillard seized the chance to question Mr Abbott's integrity.
"Now of course, we know he had 11 billion reasons why he wanted to keep these costings a secret," she said.
For Mr Abbott there was no issue of trust - he maintained a coalition government would deliver a bigger surplus and stronger economy than Labor.
"What this exercise proves is that we have absolutely nothing to hide, and we are entering into these discussions in the fullest spirit of candour," he said.
The costings back-and-forth has swayed the punters, however, according to bookie Sportingbet Australia.
Labor's odds of forming a minority government have shortened to $1.28 from $3.00, while the coalition's odds lengthened from $1.60 to $3.50.
