3 October 2014
Last updated at 11:01 ET
It should be "negotiated in accordance with international law", he said.
Sweden last month voted out the centre-right Alliance coalition of Fredrik Reinfeldt after eight years.
That allowed the Social Democrats led by Mr Lofven to form a government with other parties on the left including the Greens.
Non-member observer state "A two-state solution requires mutual recognition and a will to peaceful co-existence. Sweden will therefore recognise the state of Palestine," Mr Lofven said on Friday, without giving a timeline for the recognition.
Correspondents say that Sweden's move is likely to be strongly criticised by Israel and the US who argue that an independent Palestinian state should only emerge through negotiations.
The Palestinians have long sought to establish an independent, sovereign state in the West Bank, including East Jerusalem, and the Gaza Strip - occupied by Israel during the 1967 Six Day War.
The 1993 Oslo Accord between the Palestine Liberation Organisation (PLO) and Israel led to mutual recognition. However, two decades of on-off peace talks have since failed to produce a permanent settlement.
In 2012, the UN General Assembly voted to upgrade the status of the Palestinians to that of a "non-member observer state".
It followed a failed bid to join the international body as a full member state in 2011 because of a lack of support in the UN Security Council.
There is no definitive EU position, but most of the bloc's 28 member states have refrained from officially recognising Palestinian statehood.
Those that have include Bulgaria, Cyprus, the Czech Republic, Hungary, Malta, Poland, Romania and Slovakia.
by Natalie de Vallieres and Biodun Iginla, BBC News
Sweden
is to recognise the state of Palestine, Prime Minister Stefan Lofven
has said, the first long-term EU member country to do so.
"The conflict between Israel and Palestine can only be solved
with a two-state solution," he said during his inaugural address in
parliament.It should be "negotiated in accordance with international law", he said.
Sweden last month voted out the centre-right Alliance coalition of Fredrik Reinfeldt after eight years.
That allowed the Social Democrats led by Mr Lofven to form a government with other parties on the left including the Greens.
Non-member observer state "A two-state solution requires mutual recognition and a will to peaceful co-existence. Sweden will therefore recognise the state of Palestine," Mr Lofven said on Friday, without giving a timeline for the recognition.
Correspondents say that Sweden's move is likely to be strongly criticised by Israel and the US who argue that an independent Palestinian state should only emerge through negotiations.
The Palestinians have long sought to establish an independent, sovereign state in the West Bank, including East Jerusalem, and the Gaza Strip - occupied by Israel during the 1967 Six Day War.
The 1993 Oslo Accord between the Palestine Liberation Organisation (PLO) and Israel led to mutual recognition. However, two decades of on-off peace talks have since failed to produce a permanent settlement.
In 2012, the UN General Assembly voted to upgrade the status of the Palestinians to that of a "non-member observer state".
It followed a failed bid to join the international body as a full member state in 2011 because of a lack of support in the UN Security Council.
There is no definitive EU position, but most of the bloc's 28 member states have refrained from officially recognising Palestinian statehood.
Those that have include Bulgaria, Cyprus, the Czech Republic, Hungary, Malta, Poland, Romania and Slovakia.
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