A vacancy was created after Conservative councillor Andy Oliver stepped down.
Reform UK picked up more than 65% of the vote with Conservative candidate Julie Craig trailing in third place.
The ward has traditionally been held by the Tories, but the success for Nigel Farage’s Reform was not unexpected with its popularity surging in national opinion polls.
Councillor Holmes, an Army veteran who served with the Royal Engineers, received 839 votes (65.3% share), Labour’s Norman MacLeod 247 votes (19.2%), Mrs Craig 179 votes (13.9%), while Liberal Democrat Stuart Saunders only received 19 votes (1.5%).
In a post on social network X, Reform UK deputy leader Richard Tice said it was its highest share of any vote to date, adding: “Bye bye Tories”.
The new council member previously represented the Conservatives on the council, but lost his seat in neighbouring Skelton West in 2023, later defecting to Reform UK.
His election publicity described him as a “born and bred Skelton resident with his community at heart” and a “community champion with a track record of supporting many Skelton based groups”.
Reacting, Middlesbrough South and East Cleveland Labour MP Luke Myer said: “[The] result is a terrible one for the Conservatives in a ward they’ve always held.
“It’s clear that Labour is now the only alternative to Reform.”
Mr Myer said he would work with Mr Holmes and other serving council members in the area, adding: “People across East Cleveland want practical, decent politics that gets things done.”
A statement from the South Tees Conservative Association said: ‘The Skelton East by-election was always going to be a challenge for us with the state of national polling at the moment, and whilst we had a very successful party conference this week which marked a turning point, there wasn’t the time for it to influence Thursday’s result.
“Labour in Redcar and Cleveland have completely failed to deliver for residents and this result confirms they will lose control of the council in 2027.
“We will be ready with a positive alternative offer when they do.”
