Mr Obama described the former first lady as a woman of "tremendous stature" who had his "complete confidence".

Mrs Clinton lost out to Mr Obama when the two contested a bitterly fought race for the Democratic Party presidential nomination.

At a news conference in Chicago, Mr Obama also announced nominations for other key National Security team posts.

Mr Obama said the time had come for a "new dawn of American leadership to overcome the challenges of the 21st century, and to seize the opportunities embedded in those challenges".

Mr Obama said Robert Gates would remain as defence secretary, while retired Marine Gen. James Jones was named as White House national security adviser.

Former Justice Department official Eric Holder was nominated as attorney general and Arizona Governor Janet Napolitano as secretary of homeland security.

OBAMA'S SECURITY TEAM
Secretary of State: Hillary Clinton
Defence Secretary: Robert Gates
National Security Adviser: General James Jones
Department of Homeland Security: Janet Napolitano
Ambassador to the UN: Susan Rice
Attorney General: Eric Holder


A balanced foreign team
Obama's team so far
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Mr Obama's foreign policy team team under Hillary Clinton will reassure the more hawkish elements in the US, but might disappoint those who wanted a more radical shift, says BBC News website world affairs correspondent Paul Reynolds.

Mr Obama said of Mrs Clinton: "She's an American of tremendous stature who will have my complete confidence, who knows many of the world's leaders, who will command respect in every capital, and who will clearly have the ability to advance our interests around the world."

"Hillary's appointment is a sign to friend and foe of the seriousness of my commitment to renew American diplomacy and restore our alliances," said Mr Obama.

Although the two repeatedly clashed during the nomination race, Mrs Clinton went on to campaign for Mr Obama as he took on Republican John McCain in the race for the White House.

Complicated agreement

Former president Bill Clinton had cleared the way for his wife's appointment by reaching a complicated agreement on his financial arrangements, reports said.

The American people have demanded not just a new direction at home, but a new effort to renew America's standing in the world as a force for positive change

Hillary Clinton



Correspondents said there had been fears her nomination could falter over the appearance of conflicts of interest between her husband's charitable foundation and lucrative speechmaking schedule.

Mr Clinton has agreed to release the list of donors to his foundation by the end of the year, officials overseeing the presidential transition said.

He has also agreed to submit future engagements, speeches and sources of income to the State Department and the White House and to take a more behind-the-scenes role in the daily running of his foundation, sources said.

'Energy and intellect'

Mrs Clinton pledged to give the job "her all".

"The American people have demanded not just a new direction at home, but a new effort to renew America's standing in the world as a force for positive change," she said.

We will also ensure that we have the strategy - and resources - to succeed against al-Qaeda and the Taleban

Barack Obama

The current secretary of state, Condoleezza Rice, praised Mrs Clinton as an "inspiration" who would "bring enormous energy and intellect" to the role.

"And most important I know her to be somebody who has what you need most in this job: which is a deep love of the United States of America."

Announcing his team, President-elect Obama said: "The national security challenges we face are just as great and just as urgent as our economic crisis."

Announcing that Robert Gates would remain in his job, Mr Obama said he would be given "a new mission" to "responsibly" end the war in Iraq.

"We will also ensure that we have the strategy - and resources - to succeed against al Qaeda and the Taleban," said Mr Obama.