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Kevin Rudd has been elected as leader of the Labor party by the party's caucus. His running-mate Julia Gillard was elected unopposed to the deputy leadership.
The vote was called on Friday after Kevin Rudd challenged former leader Kim Beazley for the leadership. Rudd won the leadership by a vote of 49-39.
Rudd becomes the party's third leader since the 2004 election, where the Howard government won a fourth consecutive term in government.
Long-serving deputy leader Jenny Macklin did not contest the deputy leadership following the defeat of Mr Beazley. Mrs Macklin has been deputy leader under three leaders since 2001.
The party will elect its shadow ministry in a separate ballot on Thursday.
Premier of Queensland Peter Beattie has said that the leadership change "will herald in a new period of stability for the party."
"It's important that if you have good policy and good government, it's important you also have stability in leadership," said Beattie. "I'd urge everyone to get behind Kevin - having a Queenslander as the alternative prime minister is good for the state and good for Australia."
Labor MP Dick Adams said even though he voted for Beazley to remain as leader, he supports the party's new leadership.  "There'll be a lot more harmony and a lot more opportunity of ideas," he said.  "I think the new ideas need to flow and I think if it's opened up, as some people have said, they want those ideas to come forward, but I think we'll have some interesting policy direction to take to the people."
Sharan Burrow, the president of the ACTU - the peak union body in Australia said Mr Rudd will be a strong leader. "I have no doubt that Kevin Rudd will say that these laws have to go, that they will be replaced by a policy that reinstates rights," Ms Burrow has told Sky News. 
Government MP, Christopher Pyne said that the new leadership was a poor choice for the party. "The combination of Kevin Rudd and Julia Gillard will have all the hallmarks of the mongoose and the cobra. It shows Labor is obsessed about leadership rather than policy and strategy," Mr Pyne said. 
In a poll released by Newspoll today, a Rudd-Gillard leadership team had 48 percent support of the public, compared to the outgoing Beazley-Macklin team's 27 percent.

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Rudd replaces Beazley as Australian opposition leader