Coe, who also serves as chairman of London's 2012 Olympic organising committee, will take up the role immediately as FIFA deal with alleged breaches of their code of ethics by officials, players and players' agents.
"FIFA is delighted to have Sebastian Coe as chairman of this committee," FIFA president Sepp Blatter told reporters.
"His personality and integrity, which is renowned the world over, will ensure that he is the best possible person for this role."
Football's governing body approved the new code of ethics and the ethics committee at a meeting at the organisation's headquarters in Zurich.
However, the committee will not handle the current case which involves Vice-president Jack Warner and ticket resales as it was decided the new committee will only handle cases which arise from today.
Warner's case will be handled by FIFA’s disciplinary committee.