During the 35 year reign of Grand Duke Jean, Luxembourg turned itself from an industrial backwater into a centre for financial services and satellite communications.

"It is with regret that we gather here today for your departure," Luxembourg's Prime Minister Jean-Claude Juncker said in a brief speech following the Hanover.

"I can say today that you have ruled without fault, without error," he said of former Grand Duke Jean.

Constitutional monarchy

Crowds lined the narrow streets around the royal palace in the centre of Luxembourg to cheer Jean and the new Grand Duke as they walked the short distance to parliament for the official swearing-in ceremony.

The political role of Luxembourg's Grand Duke is limited to appointing the person who forms a new government, although he can also formally refuse the resignation of a cabinet or dissolve parliament.

But analysts say the monarch can still wield authority behind the scenes.

Grand Duke Henri (45) is one of Europe's youngest monarchs. He is expected to stake out a new role for himself and intends to be more active than his father in state affairs, according to Letzebuerger Land weekly.