In the first results covering 71 per cent of the voting precincts released on Tuesday, former Vice President, who was considered the front-runner, ended up fourth, behind Senator Elizabeth Warren.
Buttigieg received 26.8 per cent of the delegates who will ultimately vote for the presidential candidate at the party convention; Sanders received 25.2 per cent, Warren 18.4 per cent, and Biden 15.4 per cent.
Iowa is the first state to hold the party election for its nominee for the November presidential election and performance there brings national attention to the leaders.
Biden may have been damaged by the disclosures about his son's business dealings in Ukraine and his intervention there which were aired during the impeachment of President Donald Trump.
The declaration of results has been held up because of a software problem in the app deployed by the Democratic Party for the precincts to report the results of the selection process held on Monday.
In the US registered party members vote to select their party candidate to run for president and for many other offices.
Iowa used a system of open voting called caucuses, rather than secret ballot.
The results were scheduled to have been announced on Monday night within hours of the close of the caucuses but the app failed and the back-up system of getting the results over the phone and manually entering them also flopped.
The Iowa Democratic Party said that the app had not been hacked and it was only a software glitch.
The app, produced by Shadow Inc., which says its mission is to "build political power for the progressive movement" and is staffed by many people connected to past presidential campaigns.
Buttigieg and Biden were among its clients.
Even before the partial results were announced, Buttigieg had declared himself the Iowa winner.
Buttigieg, 38, who is openly gay and is married to a man, is a former military officer and a Rhodes scholar.
He lost the election for state treasurer and has no experience beyond administering South Bend, a university town with a population of about 100,000, but has been able to make a mark in the nomination race as a charismatic centrist.
Biden can take advantage of the system's failure and question the validity of the results deflecting the blow of defeat.
Biden's campaign had demanded that before they announce the results the state party official give a full explanation of the quality control for the system they are using and offer the campaign a chance to respond.
Biden's son, Hunter, was made the director of a Ukrainian gas company with monthly payments of at least $50,000 despite having no experience in the field while the father was dealing with that country. Later Biden said that he had the prosecutor looking into the company fired.
Trump's request to Ukraine President Volodymyr Zelentsky to investigate the Bidens was the basis of the impeachment charges.
Sanders and Warren are both from the left wing of the Democratic Party and their combined strength showed the party's leftward lurch.
Under the Iowa caucus system, party members went to the voting precincts, which are libraries and school or private places, at 7 p.m. and gathered at designated spots for the candidates they were supporting. After a first round of counting, the supporters of candidates getting less than 15 per cent of the votes switched to their second preferences and the final tallies were made.
New Hampshire stop in the Democratic race is New Hampshire, which will hold a conventional secret ballot to select the party nominee on Tuesday.
(Arul Louis can be contacted at arul.l@.in and followed on Twitter @arulouis)
( With inputs from IANS )