The 83-year-old former President and Jatiya Party chief was appointed a special envoy with the rank and status of a cabinet minister.
Ershad, who was at the centre of a long-drawn drama over his party's flip-flop on joining the January 5 polls, was whisked away from his residence by intelligence officials on December 12 and kept at the Combined Military Hospital (CMH) to be treated for an unknown "illness".
"I'm quite well. Soon, I'll be released from the CMH," he told reporters after attending the swearing-in ceremony of the new cabinet at Bangabhaban, the presidential house, Daily Star reported.
Observers said this was a clear indication of a rift within the party that won 33 seats - 20 without any contest - in the polls which were boycotted by the Bangladesh Nationalist Party-led opposition alliance.
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However, a senior minister claimed the Jatiya Party leaders were included because the Awami League wanted to form a "multi-party government" to tackle challenges like terrorism.
Ershad, a dictator-turned-politician, ruled Bangladesh for nearly nine years during 1982-90.
Four other persons were today appointed as advisers to the premier. H T Imam was made Hasina's advisor on political affairs, Gowher Rizvi on foreign affairs, Mashiur Rahman on economic affairs, and Tarek Siddiqui on defence.
The four had also been advisors to Hasina in the last government.