Mahathir exercised caution in his first two years in power, consolidating his leadership of UMNO and, with victory in the 1982 general election, the government.
In 1983, Mahathir commenced the first of a number of battles he would have with Malaysia's royalty during his premiership.
The position of Yang di-Pertuan Agong, the Malaysian head of state, was due to rotate in to either the elderly Idris Shah II of Perak or the controversial Iskandar of Johor, who had only a few years earlier been convicted of manslaughter.
Thus Mahathir had grave reservations about the two Sultans, who were both activist rulers of their own states.
Mahathir tried to pre-emptively limit the power that the new Agong could wield over his government, introducing to parliament amendments to the Constitution to deem the Agong to assent to any bill that had not been assented within 15 days of passage by Parliament.
The proposal would also remove the power to declare a state of emergency from the Agong and place it with the prime minister.
The Agong at the time, Ahmad Shah of Pahang, agreed with the proposals in principle but balked when he realised that the proposal would also deem Sultans to assent to laws passed by state assemblies.
Supported by the Sultans, the Agong refused to assent to the constitutional amendments, which had by then passed both houses of Parliament with comfortable majorities.
When the public became aware of the impasse, and the Sultans refused to compromise with the government, Mahathir took to the streets to demonstrate public support for his position in mass rallies.
The press took the side of the government, although a large minority of Malays, including conservative UMNO politicians, and an even larger proportion of the Chinese community supported the Sultans.
After five months, the crisis resolved, as Mahathir and the Sultans agreed to a compromise.
The Agong would retain the power to declare a state of emergency, but if he refused to assent to a bill, the bill would be returned to Parliament, which could then override the Agong's veto.

On the economic front, Mahathir inherited the New Economic Policy from his predecessors, which was designed to improve the economic position of the bumiputera (Malaysia's Malays and indigenous peoples) through targets and affirmative action in areas such as corporate ownership and university admission.
Mahathir also actively pursued privatisation of government enterprises from the early 1980s, both for the liberal economic reasons it was being pursued by contemporaries such as Margaret Thatcher, and because he felt that combined with affirmative action for the bumiputera it could provide economic opportunities for bumiputera businesses.
His government privatised airlines, utilities and telecommunication firms, accelerating to a rate of about 50 privatisations a year by the mid-1990s.
While privatisation generally improved the working conditions of Malaysians in privatised industries and raised significant revenue for the government, many privatisations occurred in the absence of open tendering processes and benefited Malays who supported UMNO.
One of the most notable infrastructure projects at the time was the construction of the North–South Expressway, a motorway running from the Thai border to Singapore; the contract to construct the expressway was awarded to a business venture of UMNO.
Mahathir also oversaw the establishment of the car manufacturer Proton as a joint venture between the Malaysian government and Mitsubishi.
By the end of the 1980s, Proton had overcome poor demand and losses to become, with the support of protective tariffs, the largest car maker in Southeast Asia and a profitable enterprise.

In Mahathir's early years as prime minister, Malaysia was experiencing a resurgence of Islam among Malays.
Malays were becoming more religious and more conservative.
PAS, which had in the 1970s joined UMNO in government, responded to the resurgence by taking an increasingly strident Islamist stand under the leadership of the man who in 1969 had defeated Mahathir for his parliamentary
Mahathir exercised caution in his first two years in power, consolidating his leadership of UMNO and, with victory in the 1982 general election, the government. In 1983, Mahathir commenced the first of a number of battles he would have with Malaysia's royalty during his premiership. The position of Yang di-Pertuan Agong, the Malaysian head of state, was due to rotate in to either the elderly Idris Shah II of Perak or the controversial Iskandar of Johor, who had only a few years earlier been convicted of manslaughter. Thus Mahathir had grave reservations about the two Sultans, who were both activist rulers of their own states. Mahathir tried to pre-emptively limit the power that the new Agong could wield over his government, introducing to parliament amendments to the Constitution to deem the Agong to assent to any bill that had not been assented within 15 days of passage by Parliament. The proposal would also remove the power to declare a state of emergency from the Agong and place it with the prime minister. The Agong at the time, Ahmad Shah of Pahang, agreed with the proposals in principle but balked when he realised that the proposal would also deem Sultans to assent to laws passed by state assemblies. Supported by the Sultans, the Agong refused to assent to the constitutional amendments, which had by then passed both houses of Parliament with comfortable majorities. When the public became aware of the impasse, and the Sultans refused to compromise with the government, Mahathir took to the streets to demonstrate public support for his position in mass rallies. The press took the side of the government, although a large minority of Malays, including conservative UMNO politicians, and an even larger proportion of the Chinese community supported the Sultans. After five months, the crisis resolved, as Mahathir and the Sultans agreed to a compromise. The Agong would retain the power to declare a state of emergency, but if he refused to assent to a bill, the bill would be returned to Parliament, which could then override the Agong's veto.
On the economic front, Mahathir inherited the New Economic Policy from his predecessors, which was designed to improve the economic position of the bumiputera (Malaysia's Malays and indigenous peoples) through targets and affirmative action in areas such as corporate ownership and university admission. Mahathir also actively pursued privatisation of government enterprises from the early 1980s, both for the liberal economic reasons it was being pursued by contemporaries such as Margaret Thatcher, and because he felt that combined with affirmative action for the bumiputera it could provide economic opportunities for bumiputera businesses. His government privatised airlines, utilities and telecommunication firms, accelerating to a rate of about 50 privatisations a year by the mid-1990s. While privatisation generally improved the working conditions of Malaysians in privatised industries and raised significant revenue for the government, many privatisations occurred in the absence of open tendering processes and benefited Malays who supported UMNO. One of the most notable infrastructure projects at the time was the construction of the North–South Expressway, a motorway running from the Thai border to Singapore; the contract to construct the expressway was awarded to a business venture of UMNO. Mahathir also oversaw the establishment of the car manufacturer Proton as a joint venture between the Malaysian government and Mitsubishi. By the end of the 1980s, Proton had overcome poor demand and losses to become, with the support of protective tariffs, the largest car maker in Southeast Asia and a profitable enterprise.
In Mahathir's early years as prime minister, Malaysia was experiencing a resurgence of Islam among Malays. Malays were becoming more religious and more conservative. PAS, which had in the 1970s joined UMNO in government, responded to the resurgence by taking an increasingly strident Islamist stand under the leadership of the man who in 1969 had defeated Mahathir for his parliamentary 
Mahathir Mohamad