Julia Gillard has taken her place at the House of Representatives despatch box as the nation's first woman prime minister.
Ms Gillard, sworn in 90 minutes earlier by the governor-general, was welcomed to the chamber by Opposition Leader Tony Abbott, who shook her hand.
She was sworn in as Australia's 27th prime minister.
Ms Gillard vowed to "fight with every ounce of my being" to ensure Labor wins the next election as she took on the historic role.
She has promised to go to the polls and seek a mandate from the people "within months" after winning the Labor leadership unopposed on Thursday morning.
After denying for months that she wanted the leadership, Ms Gillard told reporters she had decided finally to put up her hand because she believed a "good government was losing its way".
"It was necessary for me to take this step to take control and to ensure that the government got back on track," she said.
Ms Gillard said she took her fair share of responsibility for the Rudd government's record including the errors.
"I know the Rudd government did not do all it said it would do, and at times it went off track," she said.
Kevin Rudd on Thursday morning gave in to the inevitable fact that he had been abandoned by the majority of his party after signalling just 12 hours earlier he would fight for his political life.
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Labor is now on election footing after Julia Gillard was elected unopposed in the party room to become Australia's first female prime minister.
Treasurer Wayne Swan was also elected unopposed as deputy prime minister.
The country's first female Governor-General, Quentin Bryce, performed the ceremony at Government House in Canberra on Thursday afternoon.
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Ms Gillard was greeted with a kiss by her partner Tim Mathieson as she entered the room for the swearing in.
After 24 hours of drama for the government, Ms Gillard took over the top job without a ballot when Kevin Rudd stepped aside from the leadership.
The writing was on the wall for Mr Rudd after the leadership spill began in earnest on Wednesday evening - just after midnight there were reports that Ms Gillard and Mr Swan already had the numbers sewn up.
The Labor caucus met just after 9am and about half an hour later the result was announced.
A large gathering of media packed the hallway just outside the caucus room as MPs gathered for the leadership vote.
Emerging from the caucus room with Mr Swan by her side, Ms Gillard said she felt honoured.
"Can I say Australians one and all, it's with the greatest, humility, resolve and enthusiasm that I sought the endorsement of my colleagues to be the Labor leader and to be the prime minister for this country," she said.
"I have accepted that endorsement."
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Labor is now expected to quickly get itself on an election footing to take advantage of the fresh start offered by a new leader.
While Labor had remained a nose ahead on a two-party preferred vote in the opinion polls, Mr Rudd's personal support was sliding.
Ms Gillard appears to have stronger voter appeal against Tony Abbott and Labor will want to capitalise on that before she gets bogged down in the difficulties of leading.
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