May 7 (Bloomberg) -- Dmitry Medvedev was sworn in as Russia's third president, succeeding Vladimir Putin, with promises to fight corruption and inflation in partnership with a predecessor who may try to overshadow him.

``We must establish genuine respect for the law, to overcome legal nihilism, which seriously impedes development,'' Medvedev said in a speech broadcast live on state television. He renewed his vow to fight corruption in government and society.

The new president submitted Putin's nomination as prime minister to the State Duma hours after taking the oath of office. The lower house of parliament will consider the nomination tomorrow. Putin is also head of the United Russia party, which dominates parliament, possibly setting up a battle for leadership.

Medvedev, 42, a longtime Putin ally, assumes control of a country in its 10th straight year of economic growth. Russia, the world's biggest energy exporter, has benefited from record oil and gas prices, with the economy growing at an average 7 percent a year. That growth has pushed up wages, the ruble and inflation, making Russia less competitive. Medvedev has vowed to curb inflation, without presenting a program for doing so.

`Inflation Problem'

``Economically we have a big inflation problem,'' Michael Ganske, head of emerging market research at Commerzbank AG, said in a Bloomberg Television interview. ``This is the problem Medvedev needs to solve to broaden his political base and gain the support of the public.''

Yevgeny Volk, a Moscow-based analyst for the Heritage Foundation, a U.S. research group, said a power struggle between Medvedev and Putin is likely.

``I believe Putin wants to return to power as president,'' he said in an interview. ``This could become a source of tension between him and Medvedev. Medvedev could very quickly acquire a taste for power.''

Medvedev said the ``maturity and effectiveness of the legal system is am important condition for the development of the economy and the social sphere, support for entrepreneurialism and the battle with corruption.'' He has said curbing corruption will be a priority during his presidency.

``Every Russian leader since Gorbachev and Yeltsin made the same promises at the start of their term, but unfortunately little was done to implement these promises,'' Volk said. He described Medvedev as an ``apparatchik'' who will ``protect the system of crony capitalism in today's Russia.''

McCain's Comments

In Washington, presumptive Republican presidential nominee John McCain said he hoped Medvedev's ascension will start ``a new era'' in U.S.-Russian relations. He urged the new president to ``begin restoring and strengthening the institutions of democracy, including a free press and the rights of a vibrant Russian political opposition.''

In a statement, the Arizona senator also called on Medvedev to ``ease tensions with Georgia'' by reversing Russia's recent moves to strengthen ties with the breakaway Georgian provinces of Abkhazia and South Ossetia. McCain said those moves undermine Georgian sovereignty.

McCain has previously called for Russia to be expelled from the G-8 club of industrial nations in punishment for its attempts to intimidate former Soviet republics and rollbacks of domestic freedoms. He didn't repeat that call in his statement.

Gazprom Exit

Medvedev took control of Russia's strategic nuclear forces in the presence of acting Defense Minister Anatoly Serdyukov, the Kremlin said on its Web site.

The president also ceded his active role in the board of OAO Gazprom after more than six years as chairman of the world's biggest natural gas producer. During Medvedev's tenure, Gazprom's market value soared to more than $320 billion from less than $10 billion as world gas prices rose and the state-run company expanded into crude oil, electricity and coal.

Gazprom, which supplies a fourth of Europe's natural gas, also steered toward new markets such as China and North America under Medvedev and Chief Executive Officer Alexei Miller, who will fulfill the duties of chairman until Medvedev formally resigns at a shareholders' meeting on June 27.

Medvedev made clear he expects Putin to continue to play a central leadership role, thanking him for his ``unwavering personal support, which I have constantly felt. I am sure that this will be so in the future.'' After the inauguration ceremony, Putin accompanied his successor as they reviewed a march-past by the Presidential Guard.

Putin told guests at the ceremony that he had come to power in 2000 vowing ``to work openly and honestly, faithfully serving the people and the state. And I didn't break my promise.''

Zubkov Resigns

The government of Prime Minister Viktor Zubkov resigned immediately after the inauguration, clearing the way for Medvedev to confirm Putin's Cabinet.

Putin has repeatedly said he won't change the law to increase his powers as prime minister at the expense of the president.

Kremlin spokesman Dmitry Peskov declined to comment on a May 5 Gazeta newspaper report that Putin plans to push through a legislative amendment to bolster his influence.

Power Shift

Gazeta reported that Putin will more than double the number of deputy prime ministers and shift control of the Foreign Ministry, Defense Ministry and security services from the Kremlin to the prime minister's office.

``Before any such decisions are officially made, these reports are rumors, and we don't comment on rumors,'' Peskov said.

``The power will now shift from the Kremlin up to road to the White House,'' Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow, said in a Bloomberg Television interview, referring to the seats of the presidency and the government, respectively. ``I don't think they're going to conflict over roles.''

Putin strengthened his grip on power last month when he became head of United Russia. The party has little in the way of ideology beyond backing Putin and making sure the country remains a global power. It's designed to keep the same elite in control for decades, much like the Soviet Union's Communist Party and Mexico's Institutional Revolutionary Party.

``We are now moving into phase two of the neo-authoritarian project in Russia,'' said Robin Shepherd, senior fellow at Chatham House, a London research organization. ``It is quite possible that United Russia will emerge as the key medium through which Putin and his clique acquire an enduring stranglehold over the Russian political system.''

To contact the reporters on this story: Sebastian Alison in Moscow at Salison1@bloomberg.net; Henry Meyer in Moscow at H meyer4@bloomberg.net

Last Updated: May 7, 2008 15:20 EDT