The city council voted in late June to approve President Vladimir Putin's nomination of Luzhkov for another term. Under electoral changes pushed through by Putin, regional governorships - which include the mayors of Moscow and St. Petersburg - are filled by presidential nomination rather than direct election.
Putin, speaking at the inauguration, said: "I would not have insisted on the continuation of his duties if it had not been for the real results we have seen in Moscow."
During Luzhkov's 15 years in office, Moscow has transformed from a drab and economically troubled city into one of vibrant nightlife and soaring prosperity, largely due to Russia's skyrocketing oil and gas revenues.
But critics accuse Luzhkov of running the city with a heavy hand and of taking control of billion-dollar industries such as real estate and construction. Some residents also accuse him of despoiling the city's architectural heritage through the razing of historical buildings, allowing the construction of Stalinist-pastiche towers and promoting monuments by the widely disliked sculptor Zurab Tsereteli.
Unlike most other Russian politicians, Luzhkov has allowed himself to criticize federal government policies. But analysts say the Kremlin cannot afford to quarrel with Luzhkov before parliamentary elections in December and a presidential vote in March, and that it needs his popularity and authority to ensure Muscovites show support to the Kremlin.