In a stunning result, the Conservatives took the seat - which had been Labour-held since it was formed in 1974 - with a majority of 6,940.
Shadow communities secretary Steve Reed admitted it was an "absolutely shattering" result as another brick in the party's once impregnable "red wall" crumbled.
It provoked a furious reaction from the Labour left - sidelined since Sir Keir became leader last year - who said the party must now change direction.
However, Mr Reed insisted they would double down on the more centrist approach taken over the past 12 months.
"What this shows is that, although we have started to change since the cataclysm of the last general election, that change has clearly not gone far enough in order to win back the trust of the voters," he told BBC Breakfast.
In a major boost for Boris Johnson, Conservative candidate Jill Mortimer gained 15,529 votes - more than half the total cast - with Labour's Dr Paul Williams, trailing on 8,589.
And early results in council contests appeared to show voters deserting Labour, with the Tories seizing Redditch and Nuneaton and Bedworth councils in the Midlands, along with Harlow in Essex and Northumberland.
In her victory speech, Ms Mortimer said the result - overturning a Labour majority of more than 3,500 at the 2019 general election - was "truly historic".
"Labour have taken people in Hartlepool for granted for too long. I heard this time and time again on the doorstep," she said.
On the Labour left, former shadow home secretary Diane Abbott - a close ally of former leader Jeremy Corbyn -said it had been a "crushing" defeat.
"Not possible to blame Jeremy Corbyn for this result. Labour won the seat twice under his leadership. Keir Starmer must think again about his strategy," she tweeted.
Former shadow justice secretary Richard Burgon said the party needs to "urgently change direction".
"We are going backwards in areas we need to be winning," he tweeted.
"Labour's leadership needs to urgently change direction. It should start by championing the popular policies in our recent manifestos."
The left-wing, grassroots Momentum group which backed Mr Corbyn, said it was a "disaster".
Co-chairman Andrew Scattergood said: "Starmer's strategy of isolating the left and replacing meaningful policy with empty buzzwords has comprehensively failed.
"If he doesn't change direction, not only will he be out of a job - but the Labour Party may be out of government forever."
The result was in part due to voters who backed the Brexit Party in 2019 - when it took a quarter of the vote - switching to the Conservatives.
But worryingly for Labour it saw its share of the vote fall, underlining the scale of the task facing Sir Keir if he is to chart a route to No 10.
The party was braced for more difficult results as the votes are counted on Friday and over the weekend in the English local elections.
Mr Reed denied Sir Keir's leadership had been a problem and said they would work "tirelessly" to rebuild trust in the party.
"I'm very comfortable that we now have a leader that the country could see as an alternative prime minister - the problem is the Labour party itself," he said.
"We have not yet changed the Labour Party enough for people to feel able to go out and trust it with their and their children's futures."
The Conservatives, in contrast were jubilant, with co-chairman Amanda Milling saying they were "delighted" voters had chosen to put their faith in the party.
"The work to repay that faith starts right now, as we continue with our agenda to level up and build back better from the pandemic," she said.
Following the Hartlepool declaration, attention will turn to results elsewhere as counting takes place across England, Scotland and Wales in the largest test of political opinion outside a general election.
Results from the Holyrood election, where the issue of Scottish independence was a main feature in the campaign, will come through later on Friday and Saturday.
Scottish National Party leader Nicola Sturgeon's push for a second independence referendum means the stakes are high in the contest.
The SNP is expected to emerge again as the largest party in the Scottish Parliament after the election, but it wants to win an overall majority of MSPs as it pushes for a second vote on splitting from the Union - something which polls suggest remains in the balance.
Results of the elections, which also include the Welsh Parliament, police and crime commissioners and English local authorities and mayors, are expected to continue filtering through until Monday as counting will take longer than normal due to coronavirus restrictions.
In Wales, Mark Drakeford hopes to maintain Labour's grip on the Senedd - but he may find himself forced to forge a new coalition to stay as First Minister.