It will begin taking up its powers at once, after a surprise decision yesterday by the Governing Council, formed last July, to dissolve itself with immediate effect.

The changes took place within hours of Ghazi Mashal Ajil al-Yawer being named as president.

President Bush praised the new interim government saying it had the 'talent' to guide Iraq over the next months.

Both Yawer and interim Prime Minister Iyad Allawi were the favoured candidates of the Iraqi Governing Council.

The swearing-in of the interim administration follows days of wrangling between the council and American officials in Iraq.

KEY CABINET POSTS

Interior minister: Falah al-Naqib; Foreign minister: Hoshiyar Zebari; Defence minister: Hazim al-Shalaan; Finance minister: Adel Abdul Mehdi.

The US officials, along with UN envoy Lakhdar Brahimi, preferred veteran Sunni politician Adnan Pachachi to take-over the largely ceremonial role of president.

Earlier reports said Pachachi, a former foreign minister, had been chosen as president but had declined the job, reportedly because he had little backing among his fellow council members.

BBC Middle East analyst Roger Hardy says in the three-way tussle between the council, the chief US administrator Paul Bremer and the UN special envoy, the council has proved remarkably successful in getting its way.

US PRAISE

In the first reaction by a senior US official, National Security Adviser Condoleezza Rice said the formation of an interim Iraqi government was a 'positive step for the future of a free Iraq'.

Her comments were later echoed by US Secretary of State Colin Powell who said it was 'a good day for the Iraqi people' and that President George W Bush's five-point plan for Iraq was now unfolding.

He denied any rift between the IGC and US-led coalition, saying it had not been a case of each side wanting a different candidate.

Powell said the important thing was that the Iraqi people had been allowed to make their own choice and that the US had been gratified to see so many capable candidates vying for the top jobs.

COALITION FUTURE

At the swearing-in ceremony, Yawer said his goal was to make Iraq one nation, 'without murderers and criminals'.

He said he wanted a pluralistic, democratic and federal Iraq that would live in peace and co-operation with its neighbours.

IRAQ SELF-RULE TIMETABLE

30 June: Handover from Coalition Provisional Authority to interim government

End of Jan 2005: Elections to National Assembly

Autumn 2005: New constitution voted on in referendum

December 2005: Full elections for new government

January 2006: Directly elected government takes office

Yawer is a US-educated civil engineer and tribal leader who has recently criticised the way the US has handled security in Iraq.

Allawi for his part said that while he wanted the US occupation of Iraq to end as soon as possible, for now coalition forces would remain in place.

He expressed gratitude for what the coalition forces had done thus far in Iraq, saying, "We will need the participation of the multinational forces to help in defeating the enemies of Iraq".