The 52-year-old hardliner took the oath of office for another four years at a ceremony in parliament after his landslide election victory in June that triggered the worst turmoil in the Islamic republic's history.

In a speech outlining his plans for the future, Ahmadinejad said he would continue to resist "oppressive powers" and hailed his election as a sign of major change in Iran.

But prominent opposition leaders were absent from the ceremony, and outside a force of about 1,000 riot police and Basij volunteer Islamic militiamen used pepper gas on demonstrators who claim his election was rigged, witnesses said.

"The protesters were chanting anti-Ahmadinejad slogans. The police and the Basijis dispersed them. All the nearby shops are closed," a witness said.

Another group tried to demonstrate nearby but were also dispersed as protesters chanted "God is Great" and booed the security forces.

Wednesday's ceremony was attended by about 240 of Iran's 290 MPs, but prominent opposition leaders including Ahmadinejad's main defeated challenger Mir Hossein Mousavi were absent, as was powerful cleric and former president Akbar Hashemi Rafsanjani.

Ahmadinejad now has a two-week deadline to form a new government that is likely to remain on a collision course with the West, particularly over Iran's controversial nuclear drive.

"We will resist oppressors and try to correct the global discriminatory mechanisms in order to benefit all the nations of the world," Ahmadinejad told parliament.

"The June 12 epic is the start of major change in Iran and in the world."

He said Iranians should play a "more effective role" in global affairs, and pledged to fight for social justice, saying: "Special economic privileges which are the source of discrimination and corruption must be uprooted."

Although enjoying grass-roots support among the poor, Ahmadinejad's re-election set off massive street protests in Tehran and other cities, leading to a raft of political trials and increasing divisions among the ruling elite.

About 30 people were killed in the violence, hundreds wounded and around 2,000 initially arrested, while around 110 have been put on trial.

White House spokesman Robert Gibbs on Tuesday acknowledged Ahmadinejad as the "elected" president of Iran, but stopped short of declaring him the "legitimate" president and said Washington had no plans to congratulate him.

"This means they only want democracy which serves their interests and they don't respect people's votes and rights," Ahmadinejad retorted.

"You should know that nobody in Iran is awaiting your congratulations. Iranians will neither value your scowling and bullying nor your smiles and greetings."

Under President Barack Obama, the United States has made overtures for dialogue with Iran after three decades of severed ties, but Tehran has failed to respond and vowed to press on with its nuclear work.

Ahmadinejad's presidency was formally endorsed on Monday by supreme leader Ayatollah Ali Khamenei, who described him as "courageous" but warned him that the "angry, wounded opposition" would continue challenging his government.

He also told Ahmadinejad to heed the views of his critics, a possible reference to a row between the president and his own conservative supporters over controversial political appointments.

Iran's judiciary chief Ayatollah Mahmoud Hashemi Shahrudi also urged rival political groups to unite, saying: "I hope they do what is best for the revolution, the regime, and Islam and disappoint the enemies."

Opponents accuse Ahmadinejad, who enjoyed windfall oil revenues in his first term, of mismanaging the economy, stoking inflation, wasting resources and manipulating statistics to cover his failures.

Iran's stance towards close US ally Israel is also likely to harden further during the second term of Ahmadinejad, who has repeatedly said the Jewish state is doomed to disappear.

Israel, the Middle East's sole if undeclared nuclear armed state, has warned it holds a military option to curb Tehran's atomic ambitions.