Turkish President Tayyip Erdogan gave Prime Minister Ahmet Davutoglu the mandate on Tuesday to form a new government following a Nov. 1 snap election in which the ruling AK Party regained its parliamentary majority.

Erdogan, who helped found the mildly Islamist AKP more than a decade ago, hopes the party's return to power after it briefly lost its majority in a June election will enable him to overhaul Turkey's constitution and set up a strong executive presidency.

Davutoglu, who met Erdogan at the presidential palace in Ankara, is expected to name his ministers on Wednesday or Thursday, with the new cabinet likely to be packed with Erdogan loyalists.

However, critically for investors who have been unnerved by some of Erdogan's comments on the economy, Davutoglu is expected to keep control of his economic team.

Insiders say the government will prioritise efficiency and reforms, something investors and analysts have been calling for amid fears over a steady weakening of the rule of law in Turkey, a NATO member which also aspires to join the European Union.

"This will be a cabinet that will undertake reforms. There will be clear messages on that. Davutoglu will signal that fiscal discipline and current economy policies will continue," a senior official said.

Whether former deputy prime minister Ali Babacan, the darling of investors, retains a leading role in managing the economy is seen as a key barometer of how much influence Erdogan wields. Babacan, widely seen as a steady hand, has frequently found himself at odds with Erdogan's demands to cut interest rates in recent months against the background of a plunging lira currency and deep political uncertainty.

"It looks like Babacan will have a seat in the cabinet but the decision lies with Erdogan and Davutoglu. This is one of the most critical issues," the senior official said.

To the surprise of many commentators the AKP won nearly 50 percent of the vote on Nov. 1, returning Turkey to single-party government after months of fruitless efforts by the parties to build a coalition following the inconclusive June poll.

But Turks remain deeply divided on a range of issues, including constitutional reform, economic management, instability in its mainly Kurdish southeast region and the conflict in neighbouring Syria.

Erdogan and the AK Party are also under fire from the EU over media freedoms and human rights in Turkey, criticism they reject as "unfair".