President Kersti Kaljulaid officially nominated chairman of the Reform Party Kaja Kallas as the candidate for prime minister on Thursday morning.
The president signed a decree during a meeting at Kadriorg giving Kallas permission to form a government.
Kaljulaid said: "The battle against COVID-19 will continue for a long time. It has disrupted our economy, influenced the ability of our families to cope and their sense of security.
"Both the Estonian people and I are expecting that Estonia would quickly have an active and competent government, which focuses on handling the pandemic and the economic crisis and on making our lives better."
Kallas now has 14 days to give a speech in Riigikogu outlining the principles of the next government and to receive the support of the parliament.
Reform is the party with the largest amount of seats in the Riigkogu, winning 34 at the last election in March 2019.
The president said on Wednesday, after former Prime Minister Jüri Ratas (Center) submitted his resignation, that Kallas would be given the opportunity to form a government.
Kallas will become Estonia's first female prime minister if she is successful.
Prime Minister @ratasjuri is stepping down. Tomorrow I will make a formal offer to @kajakallas (@ALDEParty) to become the candidate for Prime Minister and begin forming a new government. pic.twitter.com/xqtfHKKceB— Kersti Kaljulaid (@KerstiKaljulaid) January 13, 2021
Jüri Ratas (Center) resigned as prime minister of Estonia in the early hours of Wednesday morning in the wake of a scandal surrounding a Tallinn property development.
Editor: Helen Wright