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Greece's first ever Environment, Energy and Climate Change Ministry will be headed by Tina Birbili, a close Papandreou aide and one of five women among the 15 ministers named.
Papandreou, a former foreign minister and scion of one of Greece's two main political dynasties, follows in the footsteps of his father Andreas and grandfather George, both who served several terms as prime ministers.
He was sworn in by Greece's Orthodox Church leader, Archbishop Ieronymos of Athens, at the presidential mansion. He then walked to the neighboring prime ministerial office for the hand-over from outgoing prime minister Costas Karamanlis, who had run the country since 2004.
Karamanlis, faced with his New Democracy party's worst election defeat ever - 33.48 percent of the vote compared to 43.92 percent for the Socialist PASOK party - has resigned as head of the conservatives.
A small crowd of onlookers gathered outside the presidential mansion, cheering Papandreou as he walked to his new office, with some well-wishers hugging or kissing him on the cheek.
The new prime minister's top priority will be reforming the faltering economy, which is expected to contract this year after years of growth.
On Tuesday, Bank of Greece governor George Provopoulos said the budget deficit appears to be heading for 10 percent of gross domestic product at the end of 2009, which is the most pessimistic estimate so far and well above the conservatives' 6 percent projection.
The public debt is expected to exceed 100 percent of economic output.
Before the Oct. 4 elections, Papandreou proposed a stimulus package of up to €3 billion ($4.42 billion) to extract Greece from the crisis, giving public sector workers above-inflation pay raises and boosting infrastructure investment. In stark contrast, Karamanlis had presented a gloomy outlook of public sector salary, pension and hiring freezes.
With his comfortable majority of 160 seats in the 300-member parliament, Papandreou will have a strong government able to push through reforms.
Provopoulos said the Socialists' strong electoral showing "will considerably facilitate (them) in passing needed reforms." He advocated a long-term fiscal consolidation program and "daring and broad" reforms in the public sector and the labor market.
"To achieve sustainably high growth rates in the future, Greece will have to confront basic challenges such as the chronically high current accounts balance, high fiscal deficits and the worrying level of the public debt," Provopoulos told the annual International Monetary Fund meeting in Istanbul, Turkey.
Papandreou himself has said that Greece faces difficulties, saying Sunday after being elected that "nothing is going to be easy."
