Jose Ramos Horta, a Nobel peace prize winner, takes over one day after the country' defence and security ministers resigned and Xanana Gusmao, East Timor's president, took over their portfolios and adopted emergency powers.
"I'm the only one who might be able to heal the wounds within the armed forces, between the armed forces and the police force, between the armed forces and society at large," he told Australian radio on Friday.
The move comes after rebel commander Major Alfredo Reinado signalled he was willing to disarm, said Brigadier Mick Slater, head of the Australian peacekeeping force in East Timor.
"He is just waiting for the word from me that it's time for him to hand over his weapons and sit down at the negotiating table," Slater said.
Pressure on PM
The development could also put further pressure on Mari Alkatiri, the country's prime minister, who has rejected calls from the rebel group to resign.
Earlier on Friday, hundreds of people raided government warehouses in the East Timorese capital, Dili, on Friday, looting computers and office equipment.
Residents had been waiting for rice handouts but became angry after hearing news that a nearby warehouse building containing food relief had been emptied by looters.
A looter returns goods he took
from a warehouse
International peacekeepers and police officers dispersed the crowd and forced some to return goods, local officials said.
"People are hungry and they don't have money, so they are stealing stuff in hopes of selling it and using the money to buy food in the shops," said Joao Pereira, a Timorese police officer at the scene.
Fighting erupted in the country last week when 600 soldiers were dismissed after protesting about discrimination and unpaid salaries.
Violence spread as rival gangs rampaged across the country, killing at least 20 people and forcing tens of thousands to leave their homes.
About 2,000 mainly Australian peacekeepers have since been deployed in the country.
Australia last led troops into East Timor in 1999 to restore law and order after violence by militia groups, supported by elements of the Indonesian military, after a vote to break free of Indonesian rule.