A presidential spokesman announced that the new government included two women. Figures close to Syria, the main power broker in Lebanon, figured prominently in the line-up.
Sulayman Franjiyah was appointed interior minister, and the defence and foreign affairs portfolios went to pro-Syrian allies Abd al-Rahim Murad and Mahmud Hamud, respectively.
Economist and former government minister Elias Saba was named finance minister, in a country suffering from a debt of more than $35 billion.
The announcement followed a meeting between President Emile Lahud and the prime minister, in which parliament speaker Nabih Birri later also took part.
Layla Solh, daughter of former prime minister Riad Solh and aunt of Saudi billionaire Prince Walid bin Talal, was named minister of industry. Wafaa Hamza, close to Birri, was appointed a minister of state.
The formation of the government followed several days of backroom bargaining in the face of international criticism over Syria's role in the process.
The 70-year-old Karami was named by the Lebanese president after last week's shock resignation of Rafiq Hariri, a self-made billionaire who had headed the Lebanese government for most of the past 12 years.
The choice of Karami raised concerns in the international community, which has warned Syria to end its involvement in Lebanon's domestic affairs and pull out some 15,000 troops still stationed there.
The Syrian leadership will have
allies in key Lebanese positions
The departure of Hariri, credited with helping rebuild Lebanon after 15 years of devastating civil war, has also triggered fears about the future of the country's debt-laden economy.
Lebanese newspapers said a major obstacle to the creation of the new cabinet was removed after Elias Murr, the outgoing interior minister and Lahud's son-in-law, agreed not to stay on.
Murr steps down
Health minister Sulayman Franjiyah - one of Syria's strongest allies in Lebanon - had insisted on taking the interior ministry or nothing, the reports said.
"Lahud lets Murr go to facilitate Karami's mission," read the headline of Al-Safir newspaper, which considered the move a political blow to Lahud.
Under the constitution drawn up after the 1975-1990 civil war, Lebanon's cabinet must have an equal representation of Christians and Muslims, headed by a Sunni Muslim prime minister.
Karami faced difficulties in bringing into government representatives of the Shia Muslim community and members of the Christian opposition, which is most vocally opposed to Syria's role in Lebanon, press reports said.
Rafiq Hariri quit last week after
weeks of political uncertainty
Lahud had insisted on bringing in former parliament speaker Hussain Hussaini, a Shia Muslim, but that was rejected outright by Birri.
By law, Karami's cabinet will last only until May when legislative elections are scheduled, after which a new government will be formed.
The political crisis was triggered last month when Lebanon's parliament gave Lahud three more years in office under what was widely seen as Syrian-backed constitutional amendment.
The endorsement came just a day after a UN Security Council resolution demanded the withdrawal of foreign forces from Lebanon, a clear message to the Syrian President Bashar al-Asad.
US Secretary of State Colin Powell said last week that Karami's appointment "once again shows that Syria is playing an inappropriate role in political life and in the civic life of the Lebanese people".
Furthermore, members of the US Congress have proposed freezing the assets of some Lebanese and Syrian officials in a bid to enforce the UN demands for a Syrian pullout.
On the economic front, the head of the International Monetary Fund warned on Monday about Lebanon's economic "vulnerability" given its debt and stressed the need for long overdue reforms.
In May, Washington imposed sanctions on Syria for what it called its ties to extremist groups, purported efforts to obtain weapons of mass destruction, and continued military presence in Lebanon.