New coalition

The new government has said it aims to avoid the bickering that paralysed the previous coalition.

It will embark on a programme of tax cuts and economic stimulus measures to combat the country's economic slowdown.

"From the finance ministry I will do with my colleagues what is necessary to overcome the crisis of the real economy and the financial markets," Proell said.

Ursula Plassnik, Spindelegger's predecessor, resigned on Sunday after the government's new programme left a door open for national referendums on future European Union (EU) policies, a key campaign promise of the SPO that Plassnik opposed.

Martin Bartenstein, the outgoing economy minister and one of the three conservative board members who voted against the deal with the SPO on Monday, will be replaced by Reinhold Mitterlehner.

Mitterlehner was previously secretary general of Austria's chamber of commerce.

Fear of far right

The new coalition comes almost two months after the SPO won the most votes in the September parliamentary elections, but not enough to govern alone.

The OVP finished second in the election which showed strong gains for Austria's two right-wing parties, the Freedom party and the Alliance for the Future of Austria.

Sunday's 'grand coalition' rebuilds a partnership that collapsed earlier this year after months of acrimony over issues such as tax reform and EU policy.

In announcing their decision to give the coalition another try, both parties sought to convey a new resolve in co-operating effectively together.

"It shows determination in (taking) a common path for our country,'' said Faymann.

Proell said "the will was there'' to work constructively with Faymann and his party.

"I'm very pleased that after five weeks of hard work we've laid the groundwork for five years of good work for Austria,'' Proell said.