Carl Bildt was PM in 1991-1994, then a high-flying diplomat

Mr Reinfeldt's four-party alliance won an election three weeks ago, ending 12 years of Social Democratic rule.

Mr Bildt headed the government in the early 1990s and negotiated Sweden's entry into the European Union.

He later became the EU special envoy to the former Yugoslavia and then UN special envoy to the Balkans.

Mr Reinfeldt, 41, said the government's focus would be on job creation, because despite strong growth "the situation is particularly problematic for young people".

He also pledged a $5bn (�2.6bn; 4bn euro) package of tax cuts for low and middle income earners in 2007.

Key issues in the election included whether Sweden's generous welfare model must reform for it to survive in the global economy.

Mr Reinfeldt's Moderate Party is ruling in the coalition Alliance for Sweden alongside the Folk Liberals, the Centre Party and the Christian Democrats.

Senior portfolios in the new cabinet include: Anders Borg (Moderate) as finance minister, Maud Olofsson (Centre Party) as industry minister, Maria Borelius (Moderate) as trade minister and Sven Otto Littorin (Moderate) as labour minister.