He formed the Alliance for Brazil (APB) under the banner of fighting graft and advancing Christian values.
Hundreds of supporters gathered at a Brasilia hotel to listen to Mr Bolsonaro after he led the party’s first meeting, during which he drew up its statues and appointed its executive committee – powers he lacked in the right-wing Social Liberal Party (PSL).
Mr Bolsonaro’s relationship with the PSL’s leadership reached a breaking point in recent months as they fought for control over its sizeable campaign funds.
Last month, the president exchanged insults with Luciano Bivar, the founder of the PSL, who has not wanted to hand over the reins to Mr Bolsonaro and his sons.
“We have the opportunity today to unite all Brazilians of good faith for the future of our fatherland,” he said in a speech at the launch.
Ditching the PSL is a risky move for Mr Bolsonaro, who rode a wave of conservative sentiment to win last year’s election. The move could fragment his base and it may take months to formalise the new party as deadlines loom for next year’s elections.
The party emerged from obscurity last year to become the second-largest in Brazil’s Congress after Mr Bolsonaro made it the vehicle for his presidential run.
On Thursday the APB announced Mr Bolsonaro would be the party’s president and his eldest son, Senator Flavio Bolsonaro, would be its first vice president.
The party will need 500,000 signatures by the end of April in order to register for the municipal elections in October 2020.
Mr Bolsonaro aims to mobilise his enthusiastic social media following for the petition, but under Brazil’s current electoral laws, the signatures have to be collected physically on paper.
If the TSE electoral court does not allow digital signatures, Mr Bolsonaro told reporters the APB will not run in next year’s campaign because there will not be enough time to gather signatures, verify them and register the party.
Organisers of his new party expect grassroots support from many in Brazil’s fast-growing Evangelical Christian population, which turned out to vote for Mr Bolsonaro en masse last October, drawn by his vow to stop moves to legalise abortion, gay marriage and the use of marijuana.
Mr Bolsonaro has said he hopes a majority of the PSL’s 53 members of the lower house and three senators will follow him to the APB.
The party’s statutes includes commitment to defend life from the moment of conception and legislate the right to carry firearms to protect private property.
Additional reporting by Reuters