The Nepali ex-serviceman, who will represent the Luton and Wayfield ward, received 1,042 votes, just four ahead of a rival Labour candidate in a turnout of 30 per cent.
He is the second ever Gurkha councilor after Liberal Democrat Dhan Gurung was elected in 2007 to serve his local community in Folkestone. [break]
Gurkhas are ´coming home´ after famous victory
Bhutia, from Chatham, Kent, said after his victory: "The result is a fantastic victory for the Conservatives in Chatham and Wayfield.
"It shows the sands of time are running out for the Labour party.
"I´m delighted at winning this stunning by-election victory.
"I would like to thank my campaign team for their tremendous hard work and support."

Voters claims that Bhutia´s popularity soared after the plight of the Gurkhas was highlighted by Joanna Lumley.
Residents said they wanted to vote for Tashi because of the Government´s "appalling" treatment of the Nepalese ex-servicemen who until May had to prove they had "close ties" to Britain before being granted full residency.
Terry Hendy, 30, said: "The Government deserves a bit of a kick in the teeth for how they treated the Gurkhas.
"Men like Tashi do this country proud – they have fought and died for queen and country so it´s no surprise so many people wanted him to represent them.
"He gets my vote that´s for sure."
Bhutia served in the Brigade of Gurkhas after joining the regiment in 1970.
He met his wife Kathy – who was a wren in the Royal Navy – while on active service with his battalion in Hong Kong.
The couple, who married in 1980, have three children – two daughters Tshering, 25, Sonam, 23, and son Ruden, 18.
Eric Pickles, the chairman of the Conservative party, said that he was "delighted" Bhutia, 54, had won but it was a "shame" the Government took so long to recognize the "honored" Nepali veterans.
"This is further proof of the invaluable contribution the Gurkha community makes to British society," he said.
"It´s a shame the government had to be dragged kicking and screaming before they woke up and realized the Gurkhas should be treated as honored veterans of our armed forces."
Kathmandu Gurkha signs Netherlands batsman Michael Levitt