The decision came after Congress emerged on top in the recent elections to the State Legislative Assemblies.
Defence Minister and party leader A K Anthony made the announcement after a high-level meeting with Congress President Sonia Gandhi.
According to media report, Chavan was considered as the front-runner for the CM's post, though there was stiff competition from former Shiv Sena leader and chief minister Narayan Rane.
Sources said that Chavan has already created a lot of goodwill in the party by overseeing two crucial elections during his short tenure as the chief minister.
In the new assembly, the Cong-NCP alliance in the state named Democratic Front bagged a total 144 seats of which the Congress bagged 81 seats and the NCP secured 63 seats in the 288-member house.