The ceremony held in a national assembly compound comes four months after the country held its second post-Taliban parliamentary elections, the results of which have met with massive controversy over claims of widespread fraud.
"Congratulations to all of you," Karzai told the lawmakers after swearing them in with the placing of a hand on a copy of the Koran.
Watched over by government ministers, local politicians, foreign diplomats and the head of US-led NATO forces in the country, General David Petraeus, Karzai urged the MPs to work together for Afghanistan's future.
"It is normal all over the world that at times of election there is competition. But when the elections are over national unity starts, when the competition is over cooperation and service starts," he said.
"I hope, given the dangers our country faces and also given the opportunities that we have for the future -- a bright, prosperous, happy and strong future -- that we can put our hands together and lead the country to a place that every person in this country hopes for."
The embattled president had last week said he would delay the opening of parliament for a month to allow time for a special tribunal to investigate claims of irregularities in September's parliamentary elections.
He told losing candidates protesting at his palace on Tuesday that his decision to go ahead with the ceremony had been influenced by "foreign hands".
"Some foreign hands questioned our decisions and started instigation to create crises in our country," Karzai said, according to a statement released by his office earlier.
They "kept provoking candidates (winning MPs) that they should inaugurate the parliament without the president's participation and that we will support you," the statement quoted the president as saying.
The elections have been controversial, not only because of the fraud that saw nearly a quarter of about five million votes thrown out, but also because of the relatively few wins by Pashtuns, Afghanistan's biggest ethnic group and Karzai's traditional powerbase.
Karzai has never endorsed the final outcome of the vote.
Afghanistan's top prosecutor, Mohammad Ishaq Alako, an ally of Karzai, opened a probe into the election results and called for the vote's annulment.
Karzai established a special tribunal to investigate claims of election fraud and has resisted demands by the new MPs -- who say it is unconstitutional -- to scrap the court.
Nearly 200 losing candidates camped out overnight at Karzai's office in an unusual show of defiance, according to a presidential aide speaking on condition of anonymity.
"About 180 to 200 of them refused to leave the palace and spent the night.... They say they're protesting the president's decision to open the parliament," he said.
The situation is being watched closely by the international community in Kabul -- 2011 is a key year for the war-torn country, with foreign troops due to start a limited withdrawal in July.
Responsibility for national security is to be handed over to Afghan forces in 2014.
"Afghanistan is committed to take responsibility for security by the end of 2014 and to take responsibility for conducting good governance. The transition is irreversible and inevitable," said Karzai.
"God willing it will happen," he added.
The United States, UN and European Union all welcomed Karzai's decision to relent and open parliament on Wednesday.
The Taliban, the key insurgent group fighting Karzai's administration and his Western military backers, denounced the new legislature as a "stooge" appointed by the United States.
"The opening or not opening of this assembly is not important to us," Taliban spokesman Zabihullah Mujahid told AFP from an unknown location.
"They (MPs) are all America's appointed representatives. This parliament is part of the stooge administration. It's something like a tribal militia that is inaugurated by General (David) Petraeus," he added.
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