Yukio Hatoyama's victory ended a half-century of LDP dominance
Japanese PM Yukio Hatoyama has promised economic revival and strong US ties, hours after taking office.
In a news conference, he vowed to deliver a "people-oriented society", quick economic improvements and frank but trusting ties with Washington.
Mr Hatoyama's Democratic Party of Japan won a huge poll victory last month, ending 50 years of almost unbroken Liberal Democratic Party rule.
His untested government now controls the world's second biggest economy.
The new cabinet are due to be sworn in by Emperor Akihito later in the day.
Former DPJ leader Katsuya Okada becomes foreign minister and Hirohisa Fujii, a veteran bureaucrat, takes over as finance minister.
Roland Buerk, BBC News, Tokyo
Yukio Hatoyama looks like many who have gone before him, the scion of a wealthy dynasty, the grandson of a former prime minister. But his DPJ has promised profound reform.
For decades the LDP, bureaucrats and big business held sway, steering the country from wartime defeat to economic might. But in recent years this brought stagnation, rising unemployment and increasing inequality.
Mr Hatoyama wants to build a more 'fraternal' society, with a social safety net including a generous child allowance. He wants to turn away from export-led growth and encourage domestic demand.
But there are deep concerns over whether the untested new government can deliver the new era they promise.
Another former DPJ leader, Naoto Kan, will head a new National Strategy Bureau set up to oversee the bureaucracy. He also becomes deputy prime minister.
The defeated LDP, meanwhile, will hold an election later this month to choose its new leader, after former Prime Minister Taro Aso stepped down.
The DPJ has entered into a coalition deal with two smaller parties, the Social Democratic Party and the People's New Party, and controls both houses of parliament.
Its priorities include tackling a rapidly ageing society and an economy still struggling after a brutal recession.
"We would like to carry out policies that will stimulate households so the Japanese people can have hopes for the future," Mr Hatoyama said.
He has promised to increase social welfare spending, cut government waste and rein in the powerful bureaucracy.
''Now is the time to practise politics that are not controlled by bureaucrats,'' he said.
On foreign policy, he said ties with the US were a priority.
But he said he wanted a relationship in which Japan "can act more proactively and tell them our opinions frankly", adding that his party's position on reviewing deals relating to the US troop presence had not changed.
The DPJ was elected as a wave of discontent with LDP rule swept across Japan.
Opinion polls have shown many people did not vote for the DPJ because of their policies - but because they wanted change.
Analysts say the electorate will be watching the DPJ closely in the next few weeks and months to see if it can deliver.
The BBC's Roland Buerk, in Tokyo, says that in defeating the LDP, Yukio Hatoyama has already achieved what many people thought for years was impossible.
But now the really difficult part - governing Japan - begins, our correspondent says.