Voters are choosing between the ruling Mongolian People’s Party (MPP) and opposition Democratic Party.
Both parties are promising better wealth distribution from an economic boom fuelled by mining.
Mongolia’s GDP growth was 17% last year but a third of its 2.8m population live below the poverty line.
Foreign investment in the resource rich country stands at $5bn (£3.2bn), led by the coal, copper and gold mining industries.
There are more than 1,900 polling stations across the country and results could be expected within hours of the poll closing with a new electronic voting system in place, reports said.
Whichever party comes out on top, it will need to find a balance between pleasing the interests of voters and the foreign investment community, which has poured billions of dollars into the economy, says our correspondent.