Speaking to reporters, Foreign Minister Margot Wallstrom said the territory has fulfilled the "criteria of international law" adding that Palestine had both "a territory, a people and government."
She expressed her hope that Sweden's move, which has been met with both praise and scorn, would provide a "positive injection into the dynamics of the Middle East peace process."
Responding to criticism about the speed with which the decision was taken, Wallström wrote that "Some will state this decision comes too soon. I am afraid, rather, that it is too late."
Löfven told the Swedish parliament during his opening address earlier this month that the government would recognize Palestine in an effort to help the peace process between the nation and Israel.
His announcement drew both praise from Palestinian officials and criticism from Israel and the United States.
Palestinian president Mahmud Abbas on Thursday hailed Sweden's decision."President Abbas welcomes Sweden's decision," spokesman Nabil Abu Rudeina told AFP, saying the Palestinian leader described the move as "brave and historic".
Abbas called for other countries to follow Sweden's lead. "All countries of the world that are still hesitant to recognize our right to an independent Palestinian state based on 1967 borders, with east Jerusalem as its capital, (should) follow Sweden's lead," his spokesman quoted him as saying.
Margot Wallström said recognizing Palestine would make the country more equal while participating during peace negotiations with Israel, as well as offering hope to young people on both sides.
"EU members confirmed in 2009 their readiness to recognize the state of Palestine when it was appropriate," Wallström wrote. "We are now ready to take the lead. We hope this can show the way for others."
Sweden is the first country to recognize Palestine while being a member of the European Union.
Responding to the announcement, Israel's Foreign Minister Avigdor Lieberman called Swedish recognition of Palestine "deplorable".
"The decision of the Swedish government to recognise a Palestinian state is a deplorable decision which only strengthens extremist elements and Palestinian rejectionism."
He said "Sweden needs to understand that relations in the Middle East are more complicated than a piece of furniture from IKEA that you assemble at home," reports Israeli newspaper Haaretz.