Chilima, 45, was handpicked Mutharika to run alongside him in 2014 on the Democratic People's Party (DPP) ticket.
But Chilima quit the DPP last month citing corruption and nepotism.
Following mounting calls for him to run in the May 2019 vote, he launched the United Transformation Movement (UTM) in the capital Lilongwe, seeking to unseat the 79-year-old Mutharika.
"It is because of the rot that we are seeing all over that we are launching UTM," Chilima said.
"We should not allow people to continue treating us like fools. Everyone should have a bright future regardless of where they come from or the political party they support."
The ruling party has been plagued by calls from civil action groups for its leader to resign after a leaked report by the Anti-Corruption Bureau accused Mutharika of receiving a $195,000 (167,000 euros) kickback from a contract to supply food to the police.
Chilima continued his scathing attack on the DDP and Mutharika, accusing it of failing Malawians since gaining power four years ago.
He said his party's mission was to guide Malawi on the path to prosperity by tackling unemployment, power shortages, corruption and creating viable markets for farmers.
The UTM also unveiled influential politicians as party members, including the Speaker of Parliament Richard Msowoya, and former first ladies Callista Mutharika and Shanil Dzimbiri.
University of Malawi political analyst Henry Chingaipe said while there was a clear articulation of policy positions on selected issues by the UTM, some of its aims appear unrealistic.
"The creation of one million jobs in the first year is politically sexy, especially for the youth but the broad framework or strategy that he described for this is unlikely to be pulled off within a year," he told AFP.
"On agriculture, there was nothing new... the solutions came across as hot air."
Successive Malawian heads of state have been embroiled in graft and corruption scandals in the aid-dependent country.
In April, thousands of Malawians took part in the country's first nationwide anti-government demonstrations since 2011.
The marches, organised by civil action groups, were against alleged corruption and poor governance under Mutharika.
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