MOSCOW (Reuters) - Dmitry Medvedev was sworn in as Russian president on Wednesday and nominated his predecessor Vladimir Putin as prime minister, ushering in an unprecedented period of dual rule.
Medvedev, a 42-year-old former corporate lawyer and longtime Putin ally, stressed freedom and the rule of law in his first remarks after taking the oath of office in a solemn, emotional ceremony in the Kremlin's glittering St Andrew's Hall.
"I believe my most important aims will be to protect civil and economic freedoms," he told guests at the inauguration, broadcast live on state television.
"We must fight for a true respect of the law and overcome legal nihilism, which seriously hampers modern development."
Shortly afterwards, the government led by Prime Minister Viktor Zubkov followed protocol by resigning. This cleared the way for Medvedev to nominate Putin as prime minister as the carefully choreographed transition unfolded.
The new leader, who arrived at the Kremlin alone in an armored black stretch Mercedes limousine flanked by 11 motorcycle outriders, inherits a booming $1.3 trillion economy fuelled by high oil prices -- and 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 neighbors and the West.
A White House spokeswoman said U.S. President George W. Bush wished Medvedev well in his new role and was looking forward to working with him. The two leaders will probably meet at the Group of Eight summit in Japan this summer, she said.
Putin has been accused by domestic critics and Western governments of trampling on human rights and reining in freedoms won after the collapse of Soviet communism in the 1990s. He has reasserted the state's grip on the Russian economy and business.
Before Medvedev was sworn in, a somber-looking Putin entered the Kremlin alone, bid farewell to the presidential guard and thanked the Russian people for their trust over his two four-year terms.
Putin encouraged his audience to support Medvedev, saying his policies had proved right.
During the inauguration ceremony in the Grand Kremlin Palace, 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.
Patriarch Alexiy II, head of the Russian Orthodox Church, then led a service in the Kremlin's Cathedral of the Annunciation to bless the new president. Medvedev was later handed the codes that control Russia's nuclear weapons.
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.
The former KGB spy will retain major political influence both in his new role as prime minister and as head of the ruling United Russia party which controls parliament. Putin remains by far Russia's most popular politician.
"Hello bosses. You are all bosses here and I am not," Putin told party leaders at a meeting in the Kremlin after Medvedev was sworn in.
United Russia parliamentary boss Boris Gryzlov said the party would support his candidacy as premier. Communist leader Gennady Zyuganov said his party would vote against.
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.
"Putin's opponents don't think there will be a problem but interestingly, it's Putin's allies who are the most worried about what could go wrong," one Western ambassador said.
Analysts await Medvedev's first appointments for clues about whether he will be his own man or rely on Putin's allies. Top posts in the presidential administration and the FSB spy service will be particularly closely scrutinized.
Some Russia-watchers believe Medvedev's past as chief of the giant state gas company Gazprom and head of the presidential administration shows he has the right stuff for the Kremlin.
"The media are all immensely underestimating Medvedev and making the same mistake as they made eight years ago," said Florian Fenner, managing partner at UFG Asset Management which has $1.8 billion in Russian assets.
"The only real issue they have is inflation."
Cabinet names are expected to come after Putin's nomination as prime minister is confirmed by parliament on Thursday.