Putin's endorsement of Medvedev puts the candidate at a strong advantage in the run-up to the presidential election.
"This gives a chance to create the conditions for carrying out the course that has brought results all these last eight years," the outgoing president said. Putin loyalist
Medvedev, 42, is considered to be a loyalist of Putin, who hired him in the early 1990s to work in Saint Petersburg's local government.
He was Putin's campaign manager during his successful 2000 election run and later became the president's chief of staff in the Kremlin.
Medvedev is currently chairman of Gazprom, Russia's state-run natural gas company, which under him has renegotiated energy projects with multinational companies and taken a tough line with foreign customers.
Al Jazeera's Jonah Hull in Moscow said that although opposition figures have suggested that Medvedev was the man most likely to follow Putin's orders he actually has significant political experience.
"He has a very strong political background and experience having been the deputy prime minister and before that Putin's chief of staff," he said.
"He appeals to the business community, to Russia's rising middle class and he is a social reformer, he appeals to the grassroots there because he may be able to get to grips with rehabilitating Russia's crumbling infrastructure.
"It is too early to say what the Russian people think but with President Putin's backing they will think his way." 'Humiliating' nomination
Boris Nemtsov, one of the leaders of Russia's liberal opposition, attacked Medvedev's nomination as "humiliating for the people, when the authorities determine who needs to be supported," the Interfax news agency reported.
Russia's constitution prevents Putin from seeking a third consecutive term in office.
He has signalled interest in becoming Russia's next prime minister after heading the United Russia parliamentary list in recent elections and has not ruled out running for the presidency in 2012.
The other parties backing Medvedev are A Just Russia, the Agrarian Party and Civic Force.