Arvind Kejriwal aims to tap into a rich seam of public anger against the graft-tainted government, with his new political party.
Kejriwal said the formation of his party would mark a new chapter in the struggle against a 'bribe-taking culture' and pledged to field candidates at a general election due in 2014.
"Our political party is first step in the right direction, the common man will soon become the law maker," Kejriwal said, after the launch in New Delhi.
The launch of the yet-unnamed party was announced on the anniversary of the birth of the father of the nation, Mahatma Gandhi.
"We derive lessons from Mahatma Gandhi's teachings. We are determined to clean up the entire political spectrum. Our candidates will be committed to honesty and transparency and they will fight elections," Kejriwal added.
Prime Minister Manmohan Singh's government has been rocked by a string of graft accusations, including revelations that officials pocketed millions of dollars when awarding tenders for telecoms and coal-mining ventures.
Kejriwal, a former civil servant, co-founded a group called India Against Corruption which caused huge embarrassment for the Congress-led coalition government when another leader Anna Hazare went on hunger strike.
Hundreds of thousands of people took part in protests organised by India Against Corruption although the movement has since largely fizzled out.
Hazare has since parted ways with Kejriwal over his plans to enter politics, which he has described as 'full of dirt'.
Kejriwal said that his group would continue to 'seek Hazare's blessings' despite the rift.