"We salute the announcement by the Swedish prime minister," said Saeb Erakat in the West Bank administrative capital of Ramallah.
"We hope that all countries of the European Union will take the same courageous and remarkable decision... as there is no reason not to recognise the Palestinian state."
Nabil Abu Rudeina, spokesman for Palestinian president Mahmud Abbas, said "the time has come for the entire world to recognise the Palestinian state."
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And foreign minister Riyad al-Malki welcomed what he called Sweden's "historic" commitment to freedom, dignity and human rights.
Earlier, Sweden's new prime minister said in his inaugural address to parliament that "a two-state solution requires mutual recognition and the will to co-exist peacefully."
This should take place with respect for the "legitimate demands of the Palestinians and the Israelis as regards their right to self-determination and security," Stefan Loefven added.