Baroness Ashton of Upholland has been named as the European Union High Representative for Foreign and Security Policy.
She emerged as a dark horse candidate during yesterday's negotiations between EU heads of government.
Ashton was backed by the UK when it became clear former prime minister Tony Blair was out of the running for the post of President of the European Council.
The Lisbon Treaty, which comes into force on December 1, created the full time roles of president and high representative.
Baroness Ashton's appointment came as a shock to many at Westminster, but her performance as EU trade commissioner since she took the job on last year has won widespread praise.
The new EU President will be Belgian prime minister Herman van Rompuy.
Ashton will also be appointed a vice-president of the European Commission.
She only arrived in Brussels in October 2008 to replace Peter Mandelson as Britain's EU commissioner.
Ashton was made a peer in 1999 and served in a number of junior ministerial posts.
In 2007 Gordon Brown promoted her into his first Cabinet as leader of the House of Lords.
She took a leave of absence from the Lords to take up her role as an EU commissioner.
Today she defended her appointment as EU foreign chief despite never having been elected.
"Their 27 elected heads of state have had a say and they all decided on me," she told the BBC.
"Over the next few months and years I aim to show I am the best person for this job.
"I think for quite a few people they would say I am the best for the job and I was chosen because I am.
"I hope that my particular set of skills will show that in the end I am the best choice."
Speaking at a press conference following yesterday's heads of government meeting, prime minister Gordon Brown said Baroness Ashton's appointment would give Britain a powerful voice in the EU.
"It will ensure, of course, that Britain's voice is very loud and clear," he said.
"It will ensure that we will remain, as I want us to be, at the heart of Europe.
"In this role, Cathy Ashton will have a unique role over the next five years in shaping the global Europe of the future.
"She will be the first permanent chair of the European Union foreign affairs council, she will represent Europe on the world stage in negotiations with the United States, China, India, Russia and other countries, and she will be a vice president of the European Commission giving her a leading voice on all the Commission's proposals."
Dods Parliamentary Communications Ltd