Prayuth Chan-ocha announced in a statement broadcast on national television that the commission which imposed martial law on Tuesday would now take control of the country's administration.
"It is necessary for the Peace and Order Maintaining Command - which includes army, navy, armed forces and police - to take control of governing the country," Gen Prayuth said.
The development follows two days of army-mediated meetings between the country's rival political leaders that failed to break the impasse. The meetings were held at an army facility in Bangkok.
Shortly before the announcement was made, armed soldiers in military vehicles surrounded the building, apparently to block those inside from leaving.
Thailand has been gripped by bouts of political instability for more than seven years.
The latest round of unrest started in November, when demonstrators took to the streets to try to force PM Yingluck Shinawatra to step down. They accused her of being a proxy for her popular billionaire brother, former premier Thaksin Shinawatra, who was ousted in a 2006 military coup and now lives in self-imposed exile to avoid a jail sentence on a corruption conviction.
The latest coup is the 12th since the country's absolute monarchy ended in 1932.