He replaces Mr Chirac’s ally, Alain Juppe, who was found guilty in a party financing scandal.
Mr Sarkozy is widely expected to use the post to build up support for a presidential run in 2007 against Mr Chirac, his former mentor.
He won the party leadership ballot comfortably, with 85% of the vote.
The 49-year-old, seen as one of France’s most popular politicians, will give up his ministerial post on Monday to take up the party chairman post.
Mr Sarkozy’s election prompted cheering from thousands of supporters at the centre-right Union for a Popular Movement (UMP) congress outside Paris.
In a televised acceptance speech, Mr Sarkozy said he would use his new role to shake up France with reform.
“I am ready to carry your energy, I am ready to embody your hopes. I am ready as I probably have ever been,” he told a crowd of 40,000 party loyalists.
“I am ready because I know deep inside that France no longer fears change but is waiting for it, and we are going to personify this change.”
French Prime Minister Jean-Pierre Raffarin and Interior Minister Dominique de Villepin were among the ministers present.
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