Moderate cleric Hassan Rowhani assumed Iran's presidency on Saturday promising to work to lift punishing international sanctions imposed on the Islamic republic over its controversial nuclear programme.

Rowhani, 64, officially became the Islamic republic's seventh president after receiving a formal endorsement from supreme leader Ayatollah Ali Khamenei at a Tehran ceremony.

His public inauguration will take place on Sunday when he takes the oath of office in parliament, which according to media reports will be attended by 10 regional presidents and other high-ranking foreign officials.

Rowhani begins his four-year term as Iran faces grave challenges over its ailing economy and international isolation due to the controversial policies of his firebrand predecessor, Mahmoud Ahmadinejad.

"The trajectory of my government will be saving Iran's economy and (establishing) constructive engagement with the world," Rowhani said in an address broadcast live on state television.

My government, "will take fundamental steps in elevating Iran's position based on national interest and lifting of the oppressive sanctions," he said.

"The country needs a national determination to keep its distance from extremism and needs to concentrate on the rule of law."

At the ceremony in a religious hall packed with top military and government officials, as well as foreign ambassadors, Khamenei heaped praise on Rowhani and said his election had delivered a "clear message" to the world.

"There is a clear message in electing a competent individual with more than three decades of service to the (Islamic republic's) establishment," Khamenei said in a statement.

"The message is of loyalty to the (Islamic) revolution, hope in the establishment ... and trust in individuals determined to add to its success and reduce problems" in Iran, he added.

Sanctions imposed by the United States and the European Union on Iran over its nuclear activities have inflicted a painful blow to the economy.

Over the past two years the sanctions have sent inflation soaring to more than 45 percent, while the rial lost nearly 70 percent of its value against the dollar and created double-digit unemployment.

Western powers and Israel suspect Iran is developing a nuclear weapons but Tehran insists its activities are merely peaceful.

Ahmadinejad has been accused by his critics of mismanaging vast oil money.

Rowhani, a former nuclear negotiator, has said that the Iranians expect "stability in all fields, and the removing of all concerns and bottlenecks that Iran faces."

He did not elaborate but warned that "satisfying the demands of the people... would not happen at once."

His comments were echoed by Khamenei, who makes final calls on all crucial state matters including Iran's nuclear programme.

"It should not be expected that problems are removed in a short period," said Khamenei, who gave unwavering support to Ahmadinejad during his double-term presidency.

Khamenei also called on Rowhani to "defend the goals of the Islamic establishment and the rights of the nation, and to stand up to arrogance and bullies," in reference to Western powers.

Meanwhile, the Paris-based National Council of Resistance of Iran (NCRI), a secular group widely seen as the most potent anti-regime organisation, took little cheer as Rowhani took office.

NCRI chief Maryam Rajavi said that Rowhani had been a key regime figure for years, and that referring to him as moderate was "nothing but deception".

Rowhani scored a surprise, first-round victory against several conservative candidates in the June 14 presidential election, with campaign pledges to revive the economy, ease restrictions at home, and resolve tensions with world powers.

Iran is engaged in stalled, unfruitful nuclear negotiations with the so-called P5+1 group of the United States, Britain, France, China and Russia plus Germany.

Khamenei has so far blocked direct talks with the US over the nuclear case, saying Washington was "not trustworthy" despite American greenlights.

On Saturday, Khamenei repeated his distrust, warning Rowhani that "we have enemies that do not understand the language of rationale."

Rowhani is considered a regime insider as he has held senior political posts since the 1979 Islamic revolution, including representing Khamenei in the top national security council.

He also enjoys the widespread support of reformists and moderates, in particular that of pragmatic two-time ex-president Akbar Hashemi Rafsanjani, who was present at the endorsement ceremony Saturday.

In the early 2000s, Rowhani headed a relatively moderate nuclear negotiating team under reformist president Mohammad Khatami, when Tehran agreed to suspend its enrichment activity.

But that programme resumed in 2005 when Ahmadinejad was first elected. Since then Iran has massively expanded its facilities for the enrichment of uranium, an operation under the supervision of the UN nuclear watchdog.