President Iohannis reluctantly agrees to give ruling Social Democrats another chance.
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European lawmaker Viorica Dancila has been named as Prime Minister-designate in Romania making her the country's third head of government in a year and its first female premier.
President Klaus Iohannis announced the appointment which still has to be approved by parliament.
It had been widely thought Iohannis might veto the Social Democrats' (PSD) pick to replace Mihai Tudose, who quit after falling out with powerful party leader Liviu Dragnea.
Dragnea is one of a number of ruling coalition members facing trial on graft charges, while the president has become an outspoken critic of the PSD's record on combating corruption. Dragnea denies any wrongdoing.
Iohannis however said it was clear that the Social Democrats have a majority in parliament and that after weighing up the arguments he decided to give them another chance and have named their proposal as premier.
Dancila's appointment comes after the PSD forced their own prime minister to quit after less than seven months in the job. Iohannis urged the party to start delivering on its electoral promises.