Mr Gusmao said he wanted to bring change to East Timor
Independence hero Xanana Gusmao pledged reform and urged national unity as he was sworn in as the new prime minister of East Timor.
The ceremony was conducted by President Jose Ramos-Horta, who appointed him to end political deadlock caused by June's inconclusive parliamentary polls.
Former ruling party Fretilin won the most seats, but Mr Gusmao formed a majority coalition with small parties.
His appointment has triggered violent protests from some Fretilin loyalists.
On Tuesday, youths chanting pro-Fretilin slogans threw rocks and set buildings on fire in the capital, Dili, and a number of other towns.
At least six people were hurt, the Associated Press news agency said.
Violence was continuing in Baucau, 128km (80 miles) east of Dili, on Wednesday, Reuters news agency reported, but other areas were said to be quiet.
At the swearing-in ceremony at the presidential palace, Mr Gusmao promised to work for prosperity and national unity.
He promised that his ruling coalition - known as the Alliance of the Parliamentary Majority (AMP) - would bring change.
There were street protests after Mr Gusmao was named to the post
"The AMP has promised to itself to conduct reform to improve the government in this country," he said.
"The AMP government will also not become a government that only serves the interests of parties."
June's election had been seen as a fresh start for the young, impoverished nation.
But neither Fretilin nor the CNRT party led by Mr Gusmao - who was East Timor's president until May 2007 - were able to achieve an overall majority.
Fretilin, under former Prime Minister Mari Alkatiri, won 21 seats in the election, while the CNRT won 18 seats.
Fretilin argued that it should form the government because it won most votes, but the CNRT party gained a majority of seats by forming an alliance with smaller parties.
Weeks of negotiations on forming a unity government brought no result, so on Monday Mr Ramos-Horta used his constitutional right to appoint a prime minister.
Fretilin has denounced the move as illegal and says it plans to challenge the decision.