The biggest loser was the UK Independence Party, which lost the one and only seat it held. May's office has said that the most senior Cabinet members - including Treasury chief Philip Hammond, Foreign Secretary Boris Johnson and Home Secretary Amber Rudd - will keep their jobs, but she is expected to shuffle the lower ranks of ministers.
As rumours swirled about plots to oust May, Johnson denied he was planning a leadership challenge.
Asked if Mrs May should lead the Tories into the next election, Mr Grayling said: "The next election is a question for her". But not for some time, let's get this clear.
May called the early election when her party was comfortably ahead in the polls, in the hope of increasing her majority and strengthening Britain's hand in exit talks with the EU.
A strong showing for Labour in the election was capped when the party snatched the final seat to declare, Kensington, by just 20 votes.
"She's staying, for now", one Conservative Party source told Reuters. But few believe she can hang on for more than a few months.
"In particular, I regret the decision not to include in the manifesto a ceiling as well as a floor in our proposal to help meet the increasing cost of social care".
He acknowledged that the government would be unable to get numerous measures promised in its election platform through Parliament.
Ms May faced calls to resign as Prime Minister amid fierce criticism for calling the snap general election after the Conservatives fell well short of their own expectations winning just 318 seats.
Elmar Brok, a German conservative and the European Parliament's top Brexit expert, told the Ruhr Nachrichten newspaper that the two-year talks would now be more complicated.
Ruth Davidson, the openly gay leader of the Conservatives in Scotland, told the BBC she had words with May over the DUP's record on LGBT rights.
Joining forces with the hardline unionist Protestant party also threatens London's neutrality in Northern Ireland, which is key to the delicate balance of power in a province once plagued by violence.
May has said Brexit talks will begin on June 19 as scheduled, the same day as the formal reopening of parliament.
The DUP is a far-right and homophobic party in Northern Ireland, who vetoed several votes for same-sex marriage.
What is a "confidence and supply" deal?
The arrangement with the DUP will make governing easier, but it makes some Conservatives uneasy.
The DUP is a socially conservative party that opposes abortion and gay marriage, and many of its members also are sceptical about man-made climate change and reject the theory of evolution.
May, jolted by the electoral setback, however, remained defiant to calls for her resignation and vowed to form a minority government with the informal backing of the Democratic Unionist Party (DUP).
May is expected to form the new government after talks with the DUP next week, only days before the country's historic Brexit negotiations with the European Union start on June 19.
The Prime Minister has tonight spoken with the DUP to discuss finalising a confidence and supply deal when Parliament returns next week.
SCULLY: We now have a deeply uncertain situation with regard to the British government, and it is extremely hard to see what sort of, you know, progress can be made in these talks.
"She's perfectly fair to raise it. these issues are devolved, and if they were sorted in the UK Parliament they'd be free vote issues".
He said there was a "possibility" of voting down the Queen's Speech and Labour were going to "push all the way" to achieve that.
But Labour's shadow chancellor John McDonnell told ITV's Peston on Sunday that full single market membership was not "on the table" and would be seen by voters as not respecting the referendum result.
In 1974, the February general election in the United Kingdom resulted in a hung Parliament and seven months later, in October of the same year, a second general election was held to break the impasse.
May spoke to the Irish Taoiseach (Prime Minister) Enda Kenny over the phone on Sunday. "This is still on".
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