Erdogan said in May he would take further control of the central bank after June 24 elections, which sent the lira tumbling to a record low against the dollar, and forced the central bank to aggressively raise rates. Under controversial constitutional reforms approved by a referendum previous year, parliament has been weakened and the post of prime minister abolished.
But with the clock wound back under the new system, the changes would mean that Erdogan could stay in power for another two terms until 2028.
Since a failed coup attempt two years ago he's fired 125,000 workers, the latest 18,000 at the weekend, and jailed 160,000 people including opponents.
After the swearing-in held in parliament, Erdogan's inauguration ceremony took place at the presidential palace here with dozens of foreign heads of state and high-ranking officials attending the event.
Army chief of staff General Hulusi Akar joined the government as defense minister but Mevlut Cavusoglu kept the post of foreign minister.
He referred to the principles of Mustafa Kemal Ataturk, the founder of the modern Turkish Republic and vowed to "remain loyal to the rule of law, to the democratic and secular republic, and to Ataturk's principles and reforms".
Amir H H Sheikh Tamim bin Hamad Al Thani with Sudan's President, Omer Al Bashir and former president of Turkey, Abdullah Gul, during the inauguration ceremony of Turkish President Recep Tayyip Erdogan.
The lira, which has lost almost a fifth of its value against the dollar this year, dropped almost 3 percent to 4.74 to the dollar minutes after the cabinet announcement.More news: Trump administration freezes risk adjustment payments
Erdogan is also expected to meet European Council head Donald Tusk, European Commission President Jean-Claude Juncker and European Parliament President Antonio Tajani. "We are leaving behind the system that has in the past cost our country a heavy price in political and economic chaos".
Parliament can ratify or reject his budget and the president needs parliamentary approval for emergency rule and decrees passed during that time.
The appointment of Berat Albayrak, who had served as energy minister since 2015, appeared to rattle the markets.
Thus Turkey officially changed the form of government from a parliamentary to a presidential Republic.
Under the new system approved in a controversial referendum, the office of the prime minister was abolished.
"When you scrap the five-year term you remove this shield", he said.
Inflation surged last month above 15 percent, its highest level in more than a decade, despite interest rate hikes of 500 basis points by the central bank since April. The sweeping dismissals bring to about 130,000 the number of people purged from Turkey's civil service since the failed coup, and come just days before the state of emergency is set to expire.