Iraq's president has asked Haider al-Abadi, Iraq's main Shia coalition nominee for prime minister, to form a government.
Fouad Massoum tasked Abadi, first deputy speaker of parliament, with the role during a brief ceremony broadcast live on television on Monday.
"The country is now in your hands," Massoum told Abadi, who moments earlier was selected as nominee for prime minister instead of incumbent Nouri al-Maliki by the Shia National Alliance parliamentary bloc.
Maliki remains caretaker prime minister until Abadi can form a new government, which he has 30 days to do.
In a message recorded earlier on Monday, Maliki said Abadi's appointment had "no value whatsoever."
"I want to reassure everyone that don’t worry, everything that happened today is meaningless and we will still be here. I urge all the Mujahedeen army fighter sand volunteers not to worry," Maliki said of attempts to replace him.
Al Jazeera's Jane Arraf, reporting from Erbil, said that Maliki would launch a legal case to prevent Abadi from taking office.
Allies of the incumbent prime minister called the attempt to remove him a "Kurdish and American conspiracy," Arraf said.
Iraqi state TV said the the electoral slate would hold a news conference, which will be attended by Maliki.
News of Abadi's appointment has been welcomed by the US and the UN, with the latter's special representative in Iraq, Nickolay Mladenov, praising Massoum for fulfilling "his role".
Mladenov also warned the country's military from getting involved in the political process.
"The Iraqi Security Forces should refrain from actions that may be seen as interference in matters related to the democratic transfer of political authority," he said in a statement.
The deepening political tensions come as fighters from the Islamic State group made advances by capturing the town of Jalawla northeast of Baghdad, after defeating Kurdish Peshmerga troops.
This latest round of political infighting could hamper efforts to stem advances by the Sunni group.
The State of Law had won the most parliament seats in the April elections and Maliki had seen himself as keeping the post for a third term.
But has been accused by critics of steering the country toward a sectarian war.
In a televised speech late on Sunday, Maliki had declared that he would file a legal complaint against Masum, for committing a "clear consitution violation" by missing a deadline to ask the biggest bloc in parliament to nominate a prime minister.
Iraqi special forces loyal to Maliki were deployed at Baghdad's main intersections on Monday, police officials said.
An Al Jazeera source reported that there were heightened security but there were no tanks visible.
On Monday, the French Foreign Minister Laurent Fabius called on the EU to "mobilise" to respond to appeals from Iraqi Kurds for arms to fight Islamic State members, as the US continues its air campaign against the fighters.
Senior US officials told AP news agency on Monday that the Obama administration, which launched airdrops and airstrikes last week to support Kurdish and Iraqi forces battling the armed group, has begun directly providing weapons to the Kurdish peshmerga forces.
On Sunday, Obama said resolving the crisis would be a "long term project" that would not end unless Iraqis formed an inclusive government capable of keeping the country from breaking apart.
No official comment has yet been made about the weapons supply.
While the airdrops appear to have provided urgently needed aid, the harsh conditions of the Sinjar mountain range in mid-summer have taken scores of lives among Iraq's Yazidi minority, who are threatened by the armed group.
More than 30,000 Yazidis, mainly from Sinjar, have already crossed into an area of northern Iraq controlled by Kurdish forces after a week-long journey that took them through Syria after they left the mountain, according to Yazidis and UN officials.