Gen Raheel handed over the command of world's sixth- largest army by troop numbers to 57-year-old Bajwa at a ceremony held in the Army Hockey Stadium, close to the General Headquarters (GHQ) in Rawalpindi.
Prime Minister Nawaz Sharif on Saturday appointed Bajwa as Chief of Army Staff (COAS) by elevating him to the rank of a four-star general.
Raheel in January had declared that he would not seek extension. There was speculation that the PML-N government would give him extension at the eleventh hour citing reasons that he was needed by the country to lead the war on terror. The post of the army chief is the most powerful in Pakistan.
"The situation at the LoC will improve soon," he was quoted as saying by Geo News.
Bajwa sought support from the media to play a role in the keeping the morale of troops high. He said he had a heavy responsibility on his shoulders.
Bajwa took over the command of the army in garrison city of Rawalpindi, where outgoing military chief Raheel handed over the symbolic baton at an impressive ceremony.
Several high level military and civilian officials attended the ceremony during which national songs and war anthems were played by traditional military bands.
Analysts believe Bajwa's announcement that the LoC situation would improve might be a reconciliatory gesture towards India.
However, Gen Raheel was not so conciliatory in his final speech as the army chief, as he cautioned India against adopting an aggressive stance in Kashmir.
Raheel, 60, said in recent months "India's increasing terrorism and aggressive stance" in Kashmir have "endangered" the region.
"India should know that mistaking our policy of patience for weakness would be dangerous," he said.
"This is reality, that in South Asia, lasting peace and progress is impossible without solution of the Kashmir issue. For that, international community's special attention is necessary," he said.
"It is important that all institutions work together against external threats and internal threats. For this, we will need to follow the National Action Plan in letter and spirit," Gen Raheel said.
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