53-year-old Pushpa Kamal Dahal alias Prachanda was administered the oath of office by President Ram Baran Yadav during a function at the Rastrapati Bhawan in Kathmandu.
"I will remain faithful to the nation and my countrymen," said Prachanda, who donned a grey suit and black cap for the occasion instead of the traditional Nepali dress of Daura-Suruwal.
Outgoing Prime Minister Girija Prasad Koirala skipped the ceremony. However, his Nepali Congress party was represented by ex-premier Sher Bahadur Deuba. Vice President Permananda Jha, Chairman of the constituent assembly Subhas Nemwang and Chief Justice Kedarnath Giri were also present on the occasion.
The constituent assembly had voted overwhelmingly on Friday for Prachanda to be the prime minister of the world's youngest republic, a move which ended the four-month-long political instability created by a hung parliament.
Foreign diplomats, including Indian Ambassador Rakesh Sood, congratulated Prachanda after he was sworn-in as Prime Minister. The Maoist chief, who launched a decade-long armed struggle against monarchy, had secured 464 votes out of the 577 cast in the 601-strong Constituent Assembly on Friday, after receiving the backing of the Communist Party of Nepal-United Maoist Leninist and the Terai-based Madhesi Rights People's Forum.
Nepali Congress candidate Deuba failed to muster a simple majority, winning just 113 votes. Prachanda, who heads the CPN-Maoist party, is the second communist prime minister of Nepal after Man Mohan Adhikari, who led a minority government of the CPN-UML for nine months after assuming charge in 1995.
The Maoists had emerged the largest group in the landmark April 10 polls for the constituent assembly followed by the Nepali Congress and CPN-UML.
The Nepali Congress has chosen to remain in the opposition after it failed to reach an understanding with the Maoists over power-sharing and a common minimum programme.