Brigadier General Luis Rodriguez will be the first commander of the 80,000-strong National Guard, which is due to take over policing duties that Mexico gave to the military in 2006, when the government declared war on the country's powerful drug cartels.
But opponents and rights activists warn it could make things worse.
Lopez Obrador said the new force would focus on "guaranteeing public security where people live," rather than taking down cartel kingpins.
"That is the change we want to make, defending human rights and the regulated use of force in the process," he said.
The military has been accused of committing gross human-rights violations since being deployed to fight crime.
Lopez Obrador, an anti-establishment leftist, vowed during his presidential campaign last year to remove the army from the streets.
In order to get his reform through Congress, where it needed a two-thirds majority, he agreed to water down the military component of his initial proposal, putting the new force under the security rather than the defense ministry.
In an effort to win over critics, the government also signed an agreement this week with UN High Commissioner for Human Rights Michelle Bachelet under which the United Nations will advise the new force on safeguarding human rights.
Rodriguez, 62, is a 45-year veteran of the security forces.
Mexico has registered nearly 250,000 murders since deploying the army to fight drug trafficking in December 2006, including a record of more than 33,000 last year, as the newly fragmented cartels battle the military and each other, with widespread collateral damage.
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