Before the vote, many of congress's legislators said they would stay in office, while others say they could take action in international courts against the move.
Congress, seen by many in Ecuador as inefficient and corrupt, had been on a one-month recess approved by legislators.
Promising sweeping changes when he was elected in January, Correa wants to curb the powers of traditional parties and increase state control over the economy.
Correa, a US-trained economist, is popular for taking on the country's elites, who many Ecuadoreans blame for instability in the country.
|Alberto Acosta, left, was named president|
of the 130-member assembly [EPA]
Alberto Acosta, a Correa ally who was named president of the 130-member assembly, said: "This citizens' revolution is a process that will bring about deep reforms in Ecuador."
But Correa's promises to restructure debt, heavy spending and a flagging economy have investors on edge.
"Without checks and balances, Correa will push for a legislative agenda based on state intervention," Patrick Esteruelas, an analyst with political consultancy Eurasia Group, said.
"He has a blank cheque to implement all the reforms he wants and that is very worrisome."
Correa handed in his resignation to the assembly on Thursday in a symbolic move to show his independence from its members, though the assembly quickly ratified his presidency.