"Without peace all our plans will be but utopia," the AU chairman, Mozambican President Joaquim Chissano, said in a speech launching the assembly at the 53-member union's headquarters in Addis Ababa.
"Conflicts are largely the direct cause of the economic and social backwardness of our continent," he said.
The African Union is a continent-wide body intended to foster a common approach to development in a continent scarred by conflict in Liberia, Burundi, Sudan, Somalia, Ivory Coast and the Democratic Republic of Congo.
It wants the assembly, modelled on the European Parliament, to give Africans a bigger say in how they are governed.
Focus on democracy
But with several African states ruled by leaders who seized power in coups or won elections regarded as flawed, some analysts say the union should focus on developing democracy at a national level before launching grand and costly institutions.
The cash-strapped AU has already asked members to raise their contributions to fund its operations.
"I know most of them, they are serious people committed to make a difference in Africa"
The assembly, due to hold at least two sessions a year, is to provide a venue for debates on human rights, democracy, culture and good governance, the AU says.
It will have only consultative and advisory powers in its first five years but is eventually intended to have legislative powers and will also seek to harmonise laws of member countries.
No talking shop
The newly elected assembly speaker, Getrude Mongella from Tanzania, said the parliament would not be a mere talking shop.
"I do not expect that members would meet simply to discuss trifles. I know most of them, they are serious people committed to make a difference in Africa," she said.
"The pan-African parliament will also take the issues concerning globalisation and its impact on the economies of African countries very seriously," she added.
Each AU member has five representatives in the 265-member assembly, picked from each state's national parliament.
Currently, there are only 195 members since to date only 39 countries have ratified the protocol setting up the pan-African body.
AU officials said a decision on whether South Africa or Egypt will be the parliament's permanent home would be taken at a heads of state meeting in July.