"A two-state solution requires mutual recognition and the will to co-exist peacefully," Loefven said in his inaugural address to parliament.
This should take place with respect to the "legitimate demands of the Palestinians and the Israelis as regards their right to self-determination and security", he added.
Sweden's new foreign minister Margot Wallstroem told public broadcaster SR that Sweden was "in good company since 130 countries in the world have already done the same."
According to an AFP count, at least 112 countries around the world have recognised a Palestinian state. A Palestinian count puts the number at 134.
Iceland is so far the only western European nation among them.
Among EU members, countries that have recognised a Palestinian state include Bulgaria, Cyprus, the Czech Republic, Hungary, Malta, Poland and Romania.
Wallstroem said that a recognition would be "an important signal facilitating... a two-state solution."
Loefven's Social Democratic-Green Party coalition - which formed a minority government on Friday - is more supportive of demands for a Palestinian state than the previous centre-right administration.
The Social Democrats, the largest party in the Swedish parliament, wrote in their election manifesto that "Israel's war crimes must be investigated and the occupation of Gaza lifted".
The party added that "Sweden and the rest of the world must actively support its (Palestine's) work towards reconciliation".
The prime minister did not specify whether the policy would be submitted to a vote in parliament.
Sweden's foreign ministry declined comment when asked by AFP if parliamentary approval was necessary.
The Palestinian envoy to Sweden, Hala Husni Fariz, said in a statement that the decision "reflects the historical support of the Swedish government for freedom, dignity and human rights."
Sweden voted in favour of Palestinian observer status at the United Nations in 2012, which was granted despite opposition from the United States and other countries.
The Swedish announcement coincided with the start of the Jewish holiday Yom Kippur, and an Israeli government spokesman was not immediately available for comment.
Fellow EU member UK also said that it would hold a Parliamentary vote on the issue of Palestinian statehood on 13 October. If the motion passes, activists hope that it will put further international pressure on Israel and will help give the issue more weight at the UN where the UK holds a permanent Security Council seat.
US calls Sweden's recognition of Palestine "premature"
The United States said responded to Sweden's plans to recognise Palestine by saying such a move was "premature".
"We believe international recognition of a Palestinian state is premature," State Department spokeswoman Jen Psaki told reporters.
"We certainly support Palestinian statehood, but it can only come through a negotiated outcome, a resolution of final status issues and mutual recognitions by both parties."
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