At a Surayud's brief swearing-in ceremony in Government House in Bangkok on Sunday, General Sondhi Boonyaratkalin, the coup leader, said: "General Surayud has been trusted to become a new prime minister.
"The king has appointed him to administer the country from now on."
Surayud will run the country until elections are held under a new constitution.
In his first news conference as prime minister, Surayud said that he would appoint a new cabinet within a week which would work towards boosting "people's happiness".
"We will concentrate on the self-sufficiency economy that his majesty the king advocates," he said.
"We won't concentrate so much on the GDP numbers. We would rather look into the indicators of people's happiness and prosperity."
The military is due to step down from ruling the country when its self-imposed two-week deadline expires on October 4.
Thailand's army also said on Sunday that the country's king, Bhumibol Adulyadej, had endorsed a new interim constitution put forward by the military.
"The king has approved the interim constitution," the military said in a statement read on national television at 9.29am local time, considered an auspicious time in Thai culture.
The interim constitution guarantees basic human rights, installs a 36-member cabinet which will be able to pass laws, and creates an assembly of 2,000 representatives to select a panel to write a new constitution, the military said.
The 39-article charter transforms the CDR into the Council for National Security, which will oversee national security.
It will also have the power to approve - and veto - the appointment of people to key government positions including the national assembly.
Thaksin aides released
The Thai military also said on Sunday that it had released four of Thaksin's aides who were arrested shortly after the coup on September 19.
"They have already been freed this morning," General Sonthi said. "It is the police's responsibility to take care of them."
Chidchai Vanasathidya, Thaksin's deputy, and Prommin Lertsuridej, the prime minister's secretary, were detained a day after the coup and were held at a military guesthouse on the northern outskirts of Bangkok.
Newin Chidchob, the minister attached to Thaksin's office, and Yongyuth Tiyapairat, minister of natural resources and the environment, were detained on September 21.