"The parliament elected the new government of Kosovo with Isa Mustafa at its head," parliamentary speaker Kadri Veseli said.

A total of 73 lawmakers backed the new cabinet while 38 voted against it.

The election of Mustafa, a 63-year-old economist, followed a surprise deal struck on Monday between his party and that of outgoing prime minister Hashim Thaci. The agreement unblocked a political impasse that has plagued Kosovo since snap elections in June.

The government has eight ministers from Mustafa's centre-right Democratic League of Kosovo (LDK) and seven from Thaci's centre-left Democratic Party of Kosovo (PDK).

Another two portfolios will be held by minor coalition parties, while Kosovo's minority ethnic Serbs have a deputy prime minister and two ministers.

Thaci, a former guerilla fighter who ruled Kosovo since it unilaterally proclaimed independence from Serbia in 2008, will be both a deputy PM and foreign minister.

Mustafa faces a tough task in fulfilling his pledge of turning around the economy of one of Europe's poorest regions.

A third of Kosovo's population of 1.7 million is unemployed and some 40 percent live in dire poverty.

Although Thaci's PDK came first in the June 8 vote, with only 37 seats in the 120-strong parliament it was unable to form a ruling coalition that backed him as prime minister.

The LDK, which won 30 seats, than formed a bloc with three other opposition parties aimed at blocking Thaci's third mandate and pledged to form their own coalition.

But a clause in the constitution stating that the election front-runner alone can nominate the speaker of parliament blocked the opposition from naming its own candidate and proceed with nomination for PM.

That triggered a political crisis as a government cannot be formed under Kosovo law until a speaker has been named.

So after a battle over several months, Mustafa eventually turned his back on his opposition allies and reached a deal with his main rival.