Cannot setup hostname and FQDN Centos 7

I'm now running CentOS-7.0-1406 and looks like i can't setup hostname properly. As far as i know, you need to setup hostname using hostnamectl set-hostname command and write FQDN in /etc/hosts.
I have a centos machine and i want to set it's hostname to "server" and FQDN to "server.mydomain.com". I run hostnamectl command and edit /etc/hosts file:

[root@server ~]# hostnamectl set-hostname server
[root@server ~]# cat /etc/hosts
127.0.0.1   localhost localhost.localdomain localhost4 localhost4.localdomain4
::1         localhost localhost.localdomain localhost6 localhost6.localdomain6

{inet_IP_here} server.mydomain.com server 

At first everything looks fine, console displays hostname when i run hostname and it displays FQDN when i run hostname -f:

[root@server ~]# hostname
server
[root@server ~]# hostname -f
server.mydomain.com

BUT after i reboot machine and run the same commands again, it starts to display FQDN as hostname:

[root@server ~]# hostname
server.mydomain.com

I must say that it's a VPS server and i have no such problem when i do it on a local virtual machine. Also there is no any settings in VPS control panel which look like hostname. What reason might cause such problems?

Answer

The Red Hat documentation explicitly instructs you to use the fully qualified domain name as the machine's static hostname. Trying to name a server with a single unqualified name causes a variety of problems with various services, most notably email.

A host name can be a free-form string up to 64 characters in length. However, Red Hat recommends that both static and transient names match the fully-qualified domain name (FQDN) used for the machine in DNS, such as host.example.com.

You should be doing:

hostnamectl set-hostname server.example.com

You can also manually edit /etc/hostname for the same effect; again, it should contain the FQDN.

# cat /etc/hostname
server.example.com