Chris Huhne - who lost the Lib Dem leadership contest by just over 500 votes - said his rival would be "a great leader for the party".
He praised the "enormous amount of warmth and energy" Nick Clegg would bring to the job, succeeding Sir Menzies Campbell who quit in October.
He said the 40-year-old had an ability to reach out to younger people in a way that was "absolutely essential".
Mr Clegg said he was planning a "very big role" in his team for Mr Huhne.
Acting leader Vince Cable announced the winner in a packed room at London's St Martin's Lane Hotel.
'Great occasion'
He said it had been a "fiercely contested" leadership race and insisted that either man was ably suited to the top job.
Fifty three-year-old Mr Huhne, who polled 20,477 votes to Mr Clegg's 20,988, said: "There are close run things and close run things."
"I look forward to participating as part of Nick's team to make sure the party goes from strength to strength"
He thanked his campaign team and turning to his rival said: "I'm also in no doubt at all that this is a great occasion for the Liberal Democrats.
"Nick is going to be a great leader for the party. He has an enormous amount of warmth and energy to bring to this job.
"We have ahead of us some great successes. I look forward to participating as part of Nick's team to make sure the party goes from strength to strength.
"I have certainly been very struck during the campaign at the extent to which Nick has been able to reach out, particularly to younger people, and get them involved in the party in a way that is absolutely essential.
"This party is going to see even greater successes in the future than it has in the past."
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