In his speech made at the Foreign Ministry, Mr Abhisit said his top priority was to tackle Thailand's political and economic problems stemming from a months-long street campaign against the previous government.

'The urgent measures in the first year are restoring confidence and stimulating the economy,' the 44-year-old British-educated Premier said.

The red-clad demonstrators, angry at the dismissal of the previous government loyal to ousted premier Thaksin Shinawatra, had already forced the cancellation of the speech on Monday.

The speech, which is required under the Constitution before a new government can start work, was carried live on national television.

Mr Abhisit said his government 'will restore normalcy to the country and make Thailand victorious'.

But diplomats and economists are not sanguine, arguing that Mr Abhisit's new coalition government remains fragile and the deep problems confronting the country's export-dependent economy could hobble policy-making.

Opposition politicians boycotted yesterday's sitting and even as the new Premier spoke, about 1,000 flag-waving pro-Thaksin protesters moved from Parliament to demonstrate outside the gates of the Foreign Ministry.

Riot police beefed up security but there were no clashes. The demonstrators later abandoned the siege and Mr Abhisit and some 300 legislators were able to leave shortly afterwards.

Roughly 9,000 red-shirted protesters had blockaded Parliament since Monday and declared that they would leave only when the government dissolved the Lower House to pave the way for fresh elections.

But later yesterday, protest leaders declared 'victory' and told cheering supporters outside Parliament to go home for the New Year holidays.

'The fight of the red-shirted people will intensify in the new year,' protest organiser Nattawut Saikuar told the crowd.

Earlier, hundreds of riot police armed with shields made repeated efforts to create a path for legislators to enter Parliament but the demonstrators refused to back down.

Mr Abhisit secured the premiership two weeks ago after the former ruling People Power Party (PPP) was thrown into disarray when a Thai court dissolved it for vote fraud.

The court ruling prompted several elected representatives previously from the pro-Thaksin PPP and its coalition partners to back Mr Abhisit's Democrat Party and his candidacy for the premiership.

The pro-Thaksin factions have denounced the court ruling as a power grab by Bangkok's urban elite and middle- class, who they claim are threatened by the rising political clout of the country's rural and urban poor they represent.

In his speech, Mr Abhisit warned that Thailand could slip into a recession if quick action was not taken to stimulate the economy and boost flagging investor confidence, which was hammered by last month's closure of the country's two main airports by anti-Thaksin protesters.

'Political conflicts that have spread to civic groups could push the economy, along with the tourism industry, into recession if action is not taken quickly to resolve them and revive confidence among investors and foreign tourists,' he said.

'These conflicts are the country's weakness, especially at a time the world economy is entering its worst crisis in a century,' he added, warning that unemployment could double.

Official data released by the central bank shortly after Mr Abhisit's speech showed that Thailand's exports fell 17.7 per cent in November from a year before, stung by weak global demand and a disruption to shipments following the shutdown of the airports.

'This points to the need for further monetary policy easing and rapid fiscal stimulus,' economist Usara Wilaipich of Standard Chartered Bank said.

ljlopez@sph.com.sg

With additional information from wire agencies