Until Monday's announcement, he was director-general of Israel's defence ministry.
Israeli media said Ashkenazi would get the job after his leading rival for the post, Moshe Kaplinsky, the deputy chief of staff, wrote a letter to Peretz dropping out of the race.
Ashkenazi served extensively in southern Lebanon and headed the army's northern command in the final years before Israeli troops, after constant attacks by Hezbollah fighters, withdrew from the country in 2000.
He was passed over for the chief of staff post in favour of Halutz in 2005.
The outgoing military chief tendered his resignation after months of public condemnation of the military's failure to defeat Hezbollah, retrieve two captured soldiers or halt rocket attacks on Israel during the 34-day war during July and August last year.
The former air force chief was criticised by military affairs correspondents over what they described as his over-reliance on air power during the conflict.
Defence ministry role
Ashkenazi's former position as director of the defence ministry was a civilian role and he is therefore seen as a reasonably safe candidate to replace Halutz in advance of the preliminary findings of an inquiry examining the handling of the war.
Speaking before his appointmennt was officially announced, Alon Ben-David, senior defence correspondent for Israel's Channel 10, told Al Jazeera: "I think Ashkenazi's first assignment will be to rehabilitate the IDF [Israeli Defence Force] ground forces.
"On top of that I think he will have to prepare the IDF for a potential confrontation with Iran because the issue of Iran, and the nuclear programme of Iran is definitely going to be on the agenda."
Ashkenazi, 53, a retired major-general, fought as a young infantryman in the 1973 Middle East War and took part in Israel's rescue of more than 100 hostages held by Palestinian and German hijackers at Entebbe, Uganda, in 1976.
He served as an officer in the first Lebanon war in 1982, and then oversaw the withdrawal of all Israeli forces from south Lebanon in 2000.