In a 61-39 vote, the 100-seat Saeima legislature gave the green light to Prime Minister Krisjanis Karins' majority government.
The broad-based coalition is made up of five of the seven parties represented in the parliament which agreed earlier Wednesday on a deal.
The Harmony party — favored by Latvia's sizable ethnic-Russian minority — won almost 20 percent of the votes in the Oct. 6 election and became the largest party.
However, it was left in opposition, reflecting tensions between Latvians and the Russian-speaking community — a legacy of nearly 50 years of Soviet occupation that ended with Latvia's independence in 1991.
Karins, a 54-year-old dual Latvian-U.S. citizen born in Wilmington, Delaware, is a member of the New Unity party, which has the fewest seats in parliament.
Before the vote, Karins said his government would prioritize as a key task the completion an ongoing clean-up process in Latvia's banking sector which was hit last year by major banking scandals that caught the eye of Washington — a key ally to the NATO and EU member.
Failure to do so would be "a threat to the whole of (Latvia's) society," he was quoted as saying by Latvia's public broadcaster LSM.
Last year, Washington blacklisted a Latvian bank, ABLV, for allegedly helping to evade North Korea sanctions and money laundering by serving third-country "non-resident" clients mainly from Russia and former Soviet republics.
In addition, the country's central bank head is being investigated for bribery.
The main Baltic news agency BNS said it had been the longest government formation process since Latvia regained its independence.
Karins was the 3rd PM-nominee tasked to form the government by President Raimonds Vejonis after the election.