Paul Martin has formally taken office as Canada's 21st prime minister, promising sweeping changes.
Martin: An intense rival of Chretien
He replaces Jean Chretien, the longest serving leader of the major industrialised countries.
Mr Chretien agreed to step down after 10 years in office, with two years left of his term.
His government is credited with tackling chronic budget deficits and defeating separatist forces in French-speaking Quebec.
Under Mr Chretien's premiership, his Liberal Party also initiated controversial new laws - allowing same-sex marriages, and decriminalising the possession of small amounts of marijuana.
Mr Martin and his new team of ministers were sworn in on Friday.
"I look forward to the opportunity to rally Canadians toward a new sense of national purpose and around a new agenda of change and achievement," Mr Martin said.
Chretien was at odds with the US
"We are going to change the way things work in Ottawa in order to re-engage Canadians in the political process."
The new prime minister also says he is committed to improving relations with the United States.
The BBC's Lee Carter in Toronto says the Bush administration has barely concealed its displeasure at the Chretien government's opposition to the US-led war in Iraq and legislation allowing same-sex marriages.
Improving relations with Washington is of particular concern to many in Canadian Government and business circles, our correspondent says.
Mr Chretien, who will turn 70 next month, tendered his formal resignation to Governor General Adrienne Clarkson - the Queen's representative in Canada - in Ottawa on Monday.
Mr Chretien is also retiring from parliament.
Mr Martin, who was a bitter rival of Mr Chretien, took the oath of office in English and French.
There was also a purification ritual in which an elder from one of Canada's Indian nations dusted Mr Martin with an eagle feather.
The new prime minister has promised a more consultative form of government and made sweeping changes to Mr Chretien's cabinet.
Mr Martin has pledged to try to improve his government's communication with Canada's western provinces, where the majority of voters did not vote Liberal.
Mr Martin, a 65-year-old former shipping magnate, is a long-standing member of the Liberal Party and a former finance minister. He overwhelming won a leadership election in November.
He is expected to seek a fresh mandate in elections next year.