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Mr Ahmadinejad won 62% of votes, defying predictions of a close race, to defeat the more moderate ex-President Akbar Hashemi Rafsanjani.
After his win, Mr Ahmadinejad said he planned to create a "modern, advanced and Islamic" role model for the world.
His victory means all the organs of the Iranian state are now in the hands of conservative hardliners.
Mr Ahmadinejad, 49, who campaigned on a conservative Islamic platform, had surprised observers by beating five other candidates in the first round to reach the run-off.
The BBC's correspondent in Iran says it was Mr Ahmadinejad's appeal to the poor that seems to be the secret to his success. Despite Iran's huge oil wealth the country has high unemployment and a big gap between rich and poor.
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