Shorten, an ambitious former head of the Australian Workers' Union, beat ex-deputy prime minister Anthony Albanese in a month-long leadership race which went to a combined vote of Labor MPs and the party's rank-and-file members for the first time in its history.
Shorten, 46, secured victory by winning 55 of the 86 votes on offer from his parliamentary colleagues -- some 64 per cent -- despite Albanese winning 60 per cent of the popular membership vote.
The new leadership election process was recently introduced by former premier Kevin Rudd, who was ousted in his first term by deputy Julia Gillard and went on to topple her three years later, angering voters and prompting a Labor rout at last month's elections in favour of the Tony Abbott-led conservatives.
"This is a very tight result, but it's a result which has the support of the entire party," said interim Labor leader Chris Bowen of Shorten's win.
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"In Bill Shorten we have a man who is up to the job, a man who, I believe, will be the next Labor prime minister of Australia."
Bowen dismissed suggestions that the closeness of the result meant leadership divisions would continue to trouble Labor or that the party membership would be disillusioned by their favoured candidate losing out.
"Yes, the branch members will be disappointed that their candidate didn't win, but I think they'll be very grateful to have had their say," he said.
He also defended Shorten against criticisms over his central role in the coups against both Rudd and Gillard, insisting the rancour was now behind Labor.
"We passed that today by embarking on a whole new process... Opening up the decision to the entire party."
Shorten shot to fame during the 2006 Beaconsfield mine collapse, when he became the public spokesman for two miners trapped underground for two weeks. He entered parliament the following year.
Shorten, a lawyer by training, is the son-in-law of Governor-General Quentin Bryce, Queen Elizabeth II's representative in Australia, a constitutional monarchy.