Guterres, 56, president of the Socialist International since 1999, replaces former Dutch Prime Minister Ruud Lubbers, who was pressured to resign in February after allegations of sexual harassment, which he vigorously denied.
The Geneva-based UNHCR, the largest refugee agency in the world, has an annual budget of close to $1 billion and 6000 staff in 115 countries.
The UN General Assembly must approve the nomination, said UN spokesman Stephane Dujarric in making the announcement. Diplomats said the 191-member body was expected to do so soon.
Guterres was one of eight candidates interviewed by a panel of senior UN officials and outside experts. Annan made the final decision.
The final short list, UN sources said, included Guterres, Gareth Evans, Australia's former foreign minister and now president of the Brussels-based International Crisis Group think tank, and Jessen-Peterson of Denmark, head of the UN administration in Kosovo.
Lubbers (R) was forced to resign
after harassment allegations
Ken Bacon, president of Refugees International, a Washington-based advocacy group, who sat in on the selection panel, said Guterres' political skills would help him face challenges at the agency.
The UNHCR was struggling with funding shortfalls, a growing tendency of countries to close their borders to asylum seekers and a large, unprotected population of stateless and homeless people, Bacon said.
An engineer by training, Guterres was prime minister of Portugal from 1996 to 2002, when he resigned after his Socialist Party was defeated in local elections.
Wendy Chamberlin, the acting UN High Commissioner for Refugees, said in Geneva, "Former prime minister Guterres is a highly respected international statesman with a wealth of experience that will be of enormous benefit to the world's 17 million refugees and others of concern."
European Commission President Jose Manuel Barroso, also of Portugal, said, "Guterres brings his competence and his very sincere commitment to this cause, and I am delighted that this has been recognized in the secretary-general's nomination."
"I consider it a great hypocrisy that many leaders of the so-called Western world use democracy and human rights to serve the strategic interests of their countries"
UN High Commissioner for Human Rights-designate
Guterres was active in negotiations leading to the independence of East Timor, a former Portuguese colony. He also lobbied nations on the need for military intervention, which Australia carried out in 1999, to stop a scorched-earth campaign after a Timorese referendum to break from Indonesia.
In an interview in January with the World Social Forum's TerraViva online website, Guterres promoted a Marshall Plan for Africa, "one that isn't paternalistic or dictated by the international institutions or the richest countries."
He accused developed countries of hypocrisy in their dealings with less developed nations.
"I consider it a great hypocrisy that many leaders of the so-called Western world use democracy and human rights to serve the strategic interests of their countries," he said. "Human rights and democracy are essential matters that cannot be implemented with a double standard."
Guterres was in the Palestinian West Bank city of Ram Allah on Tuesday as part of a Socialist International meeting on Middle East peace.