They claimed the scale of the victory dealt a serious blow to the Nationalists' cause in the first major contest of a momentous political year which builds towards the independence referendum in September.
But the SNP played down the suggestion of any linkage between a by-election in a Labour heartland and the constitution.
Fife council leader Alex Rowley held the seat, beating the SNP's Natalie McGarry by almost 5500 votes, increasing Labour's majority by some 4300.
It was a decent night for the Tories, comfortably in third place, but it was a disastrous night for the Liberal Democrats who slipped behind UKIP with just 425 votes. UKIP gained 610 votes, well below the threshold of 1003 votes required to save its deposit.
Mr Rowley said it had been a "first-class, positive campaign" adding: "Everyone in Cowdenbeath constituency knew someone who had been helped by Helen Eadie over the years."
He said people had made clear that their priorities were jobs and opportunities from young people.
Ms McGarry said she remained confident of the prospects for success in September. "Many told me: 'I am a Labour voter and I won't be voting for you, but I am considering voting yes in the referendum."
At the SNP's high-water mark in 2011, they came within fewer than 1300 votes of taking this seat, the only one which Labour held north of the Firth of Forth.
At that Holyrood election, Mr Rowley failed to take back the neighbouring Dunfermline seat from the Liberal Democrats and saw the SNP come through the middle to seize it.
Labour took Dunfermline back in the by-election last October and Mr Rowley has now held the Cowdenbeath constituency.
This was pitched during the campaign as a battle between the respective records of the SNP Government at Hoyrood and Labour's running of Fife Council - a battle won decisively by Labour.
Jubilant party aides beamed that the SNP had been "gubbed" and pointed to a trend going back to a 9% swing to Labour in Aberdeen Donside last year, the Dunfermline result, and a string of council by-election victories, including one in Motherwell last night.
Alex Rowley (Lab) 11,192 (55.79%, +9.33%)
Natalie McGarry (SNP) 5,704 (28.43%, -13.17%)
Dave Dempsey (C) 1,893 (9.44%, +2.45%)
Denise Baykal (UKIP) 610 (3.04%)
Jade Holden (LD) 425 (2.12%, -1.77%)
Stuart Graham (Victims) 187 (0.93%)
James Trolland (SDA) 51 (0.25%)
Lab maj 5,488 (27.36%)
11.25% swing SNP to Lab
Electorate 57,687; Turnout 20,062 (34.78%, -12.51%)
2011: Lab maj 1,247 (4.86%) - Turnout 25,670 (47.29%)
Eadie (Lab) 11,926 (46.46%); Chisholm (SNP) 10,679 (41.60%); Don (C) 1,792 (6.98%); Legg (LD) 997 (3.88%); Heenan (Land) 276 (1.08%)