Malcolm Turnbull is the new Prime Minister of Australia after deposing Tony Abbott in a party room ballot. Mr Turnbull got 54 votes from his Liberal colleagues to Mr Abbott's 44.
In the deputy leader contest Julie Bishop was elected, comfortably defeating Kevin Andrews.
It is Australia's fifth Prime Minister in eight years.
Mr Turnbull's challenge came seven months after Mr Abbott last survived an internal Liberal party challenge to his leadership.
Mr Abbott has been plagued by poor opinion polls and a hostile upper house in recent months.
Mr Turnbull, a former Liberal opposition leader, earlier said he was challenging Mr Abbott because he had not been capable of providing the economic leadership Australia needed.
"We need a style of leadership that explains those challenges and opportunities, explains the challenges and how to seize the opportunities", Mr Turnbull told reporters in Canberra.
"A style of leadership that respects the people's intelligence, that explains these complex issues and then sets out the course of action we believe we should take and makes a case for it.
"We need advocacy, not slogans. We need to respect the intelligence of the Australian people."
He said the only way that Australia could ensure it remained a high wage nation with a generous social welfare system was if it had outstanding economic leadership, and strong business confidence.