Lugo said the ceremony marked the end of a notoriously corrupt' Paraguay [EPA]

Lugo, who takes over from Nicanor Duarte, the outgoing president, took the oath of office in a ceremony in the capital, Asuncion.

The ceremony was attended by several Latin American leaders, including Hugo Chavez, the Venezuelan president, and Evo Morales, the Bolivian leader.

Lugo, who has pledged to clean up corruption and transform Paraguay's impoverished society acknowledged "it won't be easy, but it's not impossible".

"Today is the end of an exclusive Paraguay, a segregationist Paraguay, a notoriously corrupt Paraguay," he said.

"Today begins the history of a Paraguay whose authorities will be implacable with thieves."

Corruption fight

Lugo won 40 per cent of the vote in a three candidate presidential race in April this year.

The former bishop was given a blessing by Pope Benedict XVI to enter office and a waiver to return to layman's status in order to become president.

On the eve of his inauguration, thousands of supporters who attended stadium rally, applauded Lugo when he said he would refuse his presidential salary of about $4,000 a month.

While Lugo has said he will govern for the poor, he has distanced himself from Chavez and his allies, sending a more pro-business message and saying he will reduce rather than increase state control of the economy.

However, the Colorado party, which also supported the 1954 to 1989 dictatorship of Alfredo Stroessner, still dominates most government institutions in the small landlocked country, where corruption is entrenched and just one per cent of the population controls 77 per cent of the land.

One of Lugo's first challenges as president will also be renegotiating hydro-power treaties with wealthy neighbouring nations Brazil and Argentina, in addition to finding solutions for thousands of landless peasants.

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