Plainspoken Farage, one of the key faces of the campaign that secured Britain's shock decision in June to leave the European Union, quit soon after the referendum saying his lifelong political ambition had been accomplished.
Diane James, an MEP, was announced as his replacement at the party's annual conference in the seaside resort of Bournemouth where Farage used his farewell speech to hail the "fairytale" Brexit result.
"Without us there would have been no referendum, without you and the people's army there would have been no ground campaign," said Farage, who has campaigned for a British exit from the EU since the early 1990s.
James, the party's home affairs spokeswoman, said UKIP was a "winning machine" but warned the party had only won a "heat" in the race to leave the EU and the exit document was not yet signed.
"Until we get a signature, we're still in, they still tell us what to do," she told party members.
Farage co-founded UKIP in 1993, growing it into Britain's third party by the number of votes cast.
"I guess in a sense it's been my life's work to get the party to this point," he said.
He said he would remain active in political life, with plans to travel across Europe to meet similar political movements, but would not seek to influence the new UKIP leader.
Five candidates ran for the party leadership, with James the bookmakers' overwhelming favourite.
She came well ahead of fellow European Parliament members Jonathan Arnott and Bill Etheridge, local authority councillor Lisa Duffy and party executives Elizabeth Jones and Phillip Broughton.
"UKIP's future is unclear," said Matthew Goodwin, an expert on the party at the University of Nottingham.
"In the aftermath of the vote for Brexit, the party has become seriously divided between separate factions and might also struggle to sustain public support from social conservatives in the new political landscape," he said.
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