SEOUL: Park Geun-Hye became South Korea's first female president Monday, vowing zero tolerance with North Korean provocation and demanding Pyongyang "abandon its nuclear ambitions" immediately.

As leader of Asia's fourth-largest economy, Park, the 61-year-old daughter of late military strongman Park Chung-Hee, faces challenges of slowing growth and soaring welfare costs in one of the world's most rapidly ageing societies.

Taking the oath of office less than two weeks after North Korea carried out its third nuclear test, Park called on the regime in Pyongyang to "abandon its nuclear ambitions without delay" and rejoin the international community.

"North Korea's recent nuclear test is a challenge to the survival and future of the Korean people, and there should be no mistake that the biggest victim will be none other than North Korea itself," she said.

"I will not tolerate any action that threatens the lives of our people and the security of our nation," Park said, while promising to pursue the trust-building policy with Pyongyang that she had promised in her campaign.

"I will move forward step by step on the basis of credible deterrence," she added.

Observers say her options will be limited by the international outcry over the North's February 12 nuclear test, which has emboldened the hawks in her ruling conservative party who oppose closer engagement.

Monday's two-and-a-half hour inauguration ceremony, held on a chilly and cloudy morning, included a musical warm-up concert that saw Korean rapper Psy perform his global hit "Gangnam Style".

Park took office a little more than 50 years after her father, a vehement anti-communist, seized power in a military coup.

Park Chung-Hee He ruled with an iron fist for the next 18 years until his assassination, and remains a divisive figure -- credited with dragging the country out of poverty but reviled for his regime's human rights abuses.

The bulk of Park's inauguration speech focused on the economy, and included commitments to job creation, expanded welfare and "economic democratisation" at a time of growing concern with income and wealth disparity.

South Korea's extraordinary economic revival from the rubble of the 1950-53 Korean War -- known as the "Miracle on the Han" -- has faltered in recent years, with key export markets hit by the global downturn.

Promising "another miracle", Park said her administration would build a new "creative economy" that would move beyond the country's traditional manufacturing base.

"At the very heart of a creative economy lie science and technology and the IT industry, areas that I have earmarked as key priorities," she said.

In a clear warning to the giant, family-run conglomerates, or "chaebols", that dominate the national economy, Park promised a more level playing field and a "fair market" where small and medium-sized businesses could flourish.

"By rooting out various unfair practices and rectifying the misguided habits of the past which have frustrated small business owners... we will provide active support to ensure that everyone can live up to their fullest potential," she said.

Chaebols such as Samsung and Hyundai were the original drivers of the nation's industrialisation and economic growth, but have been criticised as corporate bullies who muscle out smaller firms and smother innovation.

South Korea's journey from war-torn poverty to economic prosperity has done little to break the male stranglehold on political and commercial power in what in many ways remains a very conservative nation.

As South Korea's first female president, Park leads a country that is ranked below the likes of Suriname and the United Arab Emirates in gender equality.

Its low birth-rate means the population is increasingly skewed towards the over-60s, who fear an old-age of isolation and financial anxiety.

"No citizen should be left to fear that he or she might not be able to meet the basic requirements of life," Park said in her speech, promising a "new paradigm of tailored welfare" for the aged and unemployed.