Don Brash has replaced Bill English as leader of the National Party.
The decision was made by the party's MPs who voted at a caucus meeting in Parliament this morning.
Dr Brash announced the result of the secret ballot. The vote count was not revealed.
Dr Brash, the former governor of the Reserve Bank and National's finance spokesman, publicly challenged Mr English on Saturday, saying the party would lose the 2005 election if the leadership was not changed.
Mr English, who held the leadership for two years, took National to its worst-ever defeat at the last election and the party's low poll ratings since then led to the takeover.
Significant changes to National's parliamentary power structure are expected now that the leadership has changed.
The party has 27 MPs but one of them, Maurice Williamson, is suspended and two were away.
It was not immediately known whether proxy votes were allowed.
Dr Brash, who is 63, has been in Parliament for only 15 months and is a list MP.
His public challenge to Mr English was unprecedented.
A majority of the party's MPs clearly felt they need a new start with a new leader.
Dr Brash told reporters his original goal had been to become finance minister in a Bill English-led government.
"But that was not to be," he said.
"I've taken the leadership, starting from well behind, to demonstrate the danger to New Zealand that the Government poses."
Dr Brash pledged to rebuild the party and lead an opposition with ideas that could lift New Zealand.
He said he would become prime minister in 18 months, the leader of a government of probably more than two parties.