The decision comes as the president prepares to unveil a new jobs package in a speech planned for shortly after the Labor Day holiday on 5 September.
High unemployment remains one of the main concerns about the US economy, with the rate standing at 9.1%.
Mr Krueger was previously a Treasury Department economist from 2009-2010.
If confirmed by the Senate, he will become the Obama administration's third chairman of the Council of Economic Advisers in as many years.
Christina Romer served in the post from 2009-2010 and was followed by Austan Goolsbee. Both resigned after a year in the job to return to academia.
President Obama said: "As one of this country's leading economists, Alan has been a key voice on a vast array of economic issues for more than two decades.
"Alan understands the difficult challenges our country faces, and I have confidence that he will help us meet those challenges as one of the leaders on my economic team."
US President Barack Obama has nominated Alan Krueger, a Princeton University expert on unemployment, as his new chief economist.