The 53-year-old had previously been seen as a political rival of Sarkozy after he was promoted by former president Jacques Chirac to check his successor’s growing influence at the time.
"The French have had enough of nothing ever improving in their daily lives," Sarkozy said in his inaugural speech at the president's Elysee palace shortly after Wednesday's handover.
The new prime minister was once referred to by the new president as "anti-Sarkozy", but he masterminded Sarkozy's presidential campaign and shares many of his policy ideas.Parliamentary poll
"The people have entrusted me with a mandate. I will fulfil it. I will fulfil it scrupulously."
To do that, he will need to secure a majority in next month's parliamentary election or face the prospect of 'cohabiting' with a left-wing government, which would compromise his reform agenda.
An IPSOS poll on Wednesday put support for his UMP party at 40 per cent, an improvement of 1.5 points compared to the last election in 2002, which the right won. The opposition Socialists and their allies were roughly unchanged at 28 per cent.
Sarkozy is expected to name the rest of his cabinet on Friday and he says half the members will be women.