Medvedev, a 42-year-old former corporate lawyer and long-time Putin ally, stressed freedom and the rule of law in his first remarks after taking the oath of office and receiving a gold chain of double-headed eagles symbolising the presidency.

"I believe my most important aims will be to protect civil and economic freedoms," he told the 2,000 guests at the inauguration, broadcast live on television.

"We must fight for a true respect of the law and overcome legal nihilism, which seriously hampers modern development."

The new leader, who arrived at the Kremlin alone in an armoured black stretch Mercedes limousine flanked by 11 motorcycle outriders, inherits a booming economy fuelled by high oil prices -- but also a sobering set of challenges.

They include rampant corruption, rising inflation, a falling population, sickly industry and agriculture and increasingly tense relations with former Soviet neighbours and the West.

Putin has also been accused by domestic critics and foreign governments of trampling on human rights and limiting democratic freedoms.

Before Medvedev was sworn in, a sombre-looking Putin entered the Kremlin alone and thanked the Russian people for their trust and support over his two, four-year terms.

Barred by term limits from standing again, he encouraged his audience to support Medvedev but also told them not to deviate from his policies.

"It is very important for everyone to continue the course we have started already and which has proved right," he said.

Following the inauguration, Patriarch Alexiy II, the head of the powerful Russian Orthodox Church, led a religious service in a nearby cathedral to bless the new president.

Putin named Medvedev as his preferred successor last December, ensuring his overwhelming victory in the March polls. The two men have worked together since the early 1990s.

But the Kremlin leader will retain major political influence after quitting, both in his expected new role as prime minister and as head of the ruling United Russia party which controls parliament. He remains by far Russia's most popular politician.

COMMON VIEWS

Putin has said he sees no problem working with Medvedev, with whom he says he shares common views on Russia's future.

But their double-headed government has alarmed many Russians, who are accustomed to a single strong leader.

They question how the arrangement would work in a crisis and whose word would be final.

The inauguration ceremony in the Grand Kremlin Palace broadly followed the pattern set in 2000, when Putin was sworn in, allowing officials to stress continuity and the smooth transition of power.

Stirring passages from Russian composers Tchaikovsky and Glinka were meshed with pomp and circumstance for the event, which was designed in the 1990s to evoke the imperial power of Russia's past and bury memories of its drab Soviet period.

Around 2,000 politicians, religious leaders, business chiefs, ambassadors and military were invited but access was not granted to foreign media. Attendees received a gold medal with the Kremlin on one side and a double-headed eagle on the other.

The constitution, adopted under Boris Yeltsin, gives the president strong powers, including the right to define Russia's foreign and domestic policy, appoint the prime minister and other key ministers and control security and defence agencies.

Putin, in his time in office, further boosted Kremlin power by assuming the right to name hitherto elected regional governors and taking control of parliament.

The prime minister, by contrast, focuses mainly on economic and social policy.

Putin, who has presided over uninterrupted economic growth, has said he will focus on making Russia one of the top seven global economies by 2020. He has promised not to change the constitution to seek extra powers in his new job.

Eight years ago, the departing Yeltsin left Putin a pen with which he used to sign laws as a symbol of a handover of power. Putin said in a newspaper interview last month that he would take the historic pen with him rather than leave it to Medvedev.