The meeting at the president's huge palace in Ankara came a day after incoming Prime Minister Binali Yildirim, an Erdogan loyalist, disclosed his new cabinet line-up with most key ministers keeping their jobs.
The Turkish constitution allows heads of state to chair the cabinet but this right was exercised extremely rarely by Erdogan's predecessors before he was elected president in August 2014.
A presidential statement announced the start of the first meeting of Turkey's 65th government, with images showing the ministers sitting at a vast table chaired by Erdogan and overlooked by a portrait of the modern Republic's founder Mustafa Kemal Ataturk.
Erdogan wants one of the priorities of the government to be implementing constitutional changes to create a presidential system that would enshrine his status as the Turkish number one.
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Yildirim, 60, has also made no secret of his enthusiasm for a system change in Turkey that would restrict the powers of the prime minister and bolster the presidency.
Erdogan chaired several cabinet meetings during Davutoglu's premiership. But Turkish media reported that they will now be held at the presidential palace at least once a month.
"(Erdogan) says he will do everything. I said if you want to create such a system, you cannot do it without bloodshed," CHP leader Kemal Kilicdaroglu told the private NTV television.
Explaining his comment he said: "We will take to streets (in protest) and you will try to kill us with your TOMA (water cannon trucks).