A new formulation for determining the two‐fluid equilibrium of an axially symmetric plasma is presented. The inertial force due to plasma motion is taken into account in the form of a modified electrostatic potential (due to the centrifugal force) and a modified magnetic field (due to the Coriolis’ force). A set of partial differential equations which determines the modified flux functions and the self‐consistent electric and magnetic fields is derived under the assumption that the pressure is isotropic and is a function of the density and the flux function from an equation of state. The result is also formulated in the form of a variational principle which contains no constraints and hence is useful for numerical and perturbational analyses.