A woman shouts slogans during the National Assembly session held 31 January, 2007 in Caracas. AFP PHOTO

The National Assembly, composed entirely of Chavez supporters, convened in Caracas's central Bolivar Square, shouting "long live Socialism" as they moved to allow the president to rule by decree for 18 months.

The new law - which Chavez has dubbed the "mother of all laws" - will give him the power to single-handedly transform state institutions in 11 key sectors, including the economy, the military, transportation, security and oil.

Some 500 Chavez supporters dressed in his signature red gathered in front of a statue of independence hero Simon Bolivar to watch the ceremony.

Chavez's political opponents have questioned the concentration of power but have not been able to block it without representation in the National Assembly, after having boycotted 2005 elections.

"There are no financial reasons, there are no economic reasons" to justify these special powers, economist Alexander Guerrero told AFP.

Chavez received the same type of authority in 2001, when he decreed nearly 50 laws regulating land use, fisheries and oil and gas. The laws touched off months of protests and strikes.

Prior presidents have enjoyed similar powers, although they were limited by the 1961 constitution to a 12-month period. That constitution was rewritten after Chavez was first voted into power in 1999.

Legislator Mario Isea told the single-chamber legislature that it must "accelerate" lawmaking to complete the process set in motion by the 1999 constitution: Chavez's "Socialism for the 21st Century."

Otherwise the transition toward socialism "will become drawn out, which is the reason for this law," he said.

Approval of the reforms "requires the greatest haste," legislator Juan Jose Marin said.

Opposition leader Julio Borges said, "We want to open discussions on transforming the constitution by calling a national constitutional assembly, so that all Venezuelans have the right to campaign, vote and participate."

Chavez's plans include adding a stanza to the national anthem lauding Bolivar, the "liberator" of much of South America from Spain and an inspiration to most Venezuelan presidents.

With his new powers, Chavez is expected to abolish the independence of the Central Bank and to nationalise Venezuela's telecommunications and electrical power.

He has already said Venezuela will acquire 51 percent shares in foreign oil operations.

Washington went on record Tuesday demanding to be made whole for any nationalisation of foreign-owned assets.

"We would fully expect that there be fair market compensation worked out according to the accepted norms of international legal regulation for just compensation," State Department spokesman Sean McCormack said.

Incoming US Deputy Secretary of State John Negroponte said Tuesday that Chavez is threatening democracies in Latin America.

"He has been trying to export his kind of radical populism, and I think that his behaviour is threatening to democracies in the region," Negroponte told the Senate Foreign Relations Committee at a hearing to confirm his appointment as Secretary of State Condoleezza Rice's deputy.

"I do not think he has been a constructive force in the hemisphere," said Negroponte, the current US spy chief.

Chavez has piqued Washington with his fierce anti-US rhetoric, his affinity for Cuban leader Fidel Castro and his warm relations with Iranian President Mahmoud Ahmadinejad, who recently visited Venezuela.