Kevin Rudd has been sworn in for a second time as Australian prime minister, a day after toppling Julia Gillard and three months ahead of elections in which opinion polls show the ruling Labour Party faces a devastating defeat.

Mr Rudd's return as prime minister yesterday follows three years of squabbling within the Labour leadership and as the world's 12th-largest economy faces challenges stemming from a slowdown in top trade partner China.

Mr Rudd, a Mandarin-speaking former diplomat, has highlighted the difficulties associated with the end of China's resource boom and said he would work to rebuild the government's strained relations with the business community.

He left open the option of changing the September 14 election date, telling parliament prime ministers had the right to choose the date.

Mr Rudd said: "There is not going to be a huge variation one way or the other."

Analysts said the dramatic leadership change should help lift Labour's standing in opinion polls, although the initial boost might not last until the elections and Labour was still likely to lose power.

Nielsen pollster John Stirton said: "I think Kevin Rudd will probably do better than Gillard would have done. Where it could come unstuck is that the initial burst of support simply may not last."

Australian business was scathing of the political instability and urged Mr Rudd to abandon laws that strengthen trade union access to the workplace and tighten rules for temporary skilled immigration.

Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, said: "Our tolerance factor with instability in the leadership of Australia's government is at breaking point, matched only by a swathe of anti-business policies that have brought business frustration to boiling point.

"The economic challenges facing Australia, especially our declining competitiveness, high cost structure and low confidence, are serious."

The favourite to win the coming elections, opposition leader Tony Abbott, has promised to scrap a carbon tax and a 30% tax on iron ore and coal mine profits if he wins power. He has also promised tighter control of public spending, a speedier return to surplus budgets and stronger economic growth.

Mr Rudd's first task will be a major cabinet reshuffle after a string of senior ministers loyal to Ms Gillard resigned, including former deputy prime minister and treasurer Wayne Swan, trade minister Craig Emerson and climate change minister Greg Combet.

Former immigration minister Chris Bowen was sworn in as Treasurer and transport minister Anthony Albanese was sworn in as Deputy Leader.

Financial markets see few implications for the $1.5 trillion economy, which is struggling to cope with the end of a historic mining boom as commodity prices fall and a record pipeline in resource investment starts to falter.

Nomura interest rate strategist Martin Whetton said of Mr Rudd's re-appointment: "While some bounce in the polls and possibly confidence is expected, the political games will be largely a sideshow to deeper issues in the Australian economy."

Illustrating the challenges, almost 1000 jobs were cut from Australian coal mines this week alone.

Mr Abbott has urged Mr Rudd to call an election for early August to end the instability.