41-year-old Pandith's family migrated from Jammu and Kashmir in the late 1960s.
Hilary Clinton said that Pandith best suited the job.
"It is apparent now more than ever that we have to do more to promote dialogue and diplomacy, and Farah will play a key role in that process for us," she said.
She added that Pandith's appointment would strengthen US ties with the Muslim countries.
"As President Barack Obama said in Cairo and Ankara, our nation seeks a new beginning with Muslims around the world, a relationship based on mutual interest and mutual respect."