Egypt's official news agency MENA reported that Doctor Numan Gumaa, head of al-Wafd (Delegation Party), would run for president on 7 September.
The party had criticised changes to Egypt's constitution to allow for contested elections, charging, like most of the opposition, that registration conditions for candidates were too strict to mount a serious challenge to Mubarak.
But the leadership of the centre-right party made a U-turn on its election boycott pledge and approved by 30 votes to 10 the principle of running in the elections. A majority agreed to nominate Gumaa, who has until 4 August to register his candidacy with the electoral commission.
The constitutional change was approved in a 25 May referendum although the country's judges have charged that the official results of the vote were rigged.
Until now, Egyptians had been able to only say yes or no to a single candidate appointed by parliament, which is dominated by Mubarak's National Democratic Party (NDP).
Mubarak, 77, is widely expected to win a fifth six-year mandate. His main challenger will be Ayman Nur, who heads the al-Ghad party and is currently being tried on what he says are trumped up charges of forgery.
The party's decision to field a candidate will weaken the boycott decision taken by the main opposition parties including al-Tajamua al-Yasari (the Left-Wing Alliance), al-Nasiri (National) and the Muslim Brotherhood.