Mr Panetta has spoken out against the CIA's interrogation policy
US President-elect Barack Obama has chosen Leon Panetta, a former congressman and Bill Clinton aide, to run the CIA, Democratic officials say.
The choice of Mr Panetta, who has no direct intelligence background, is surprising, correspondents say.
Mr Obama has also reportedly chosen retired US Navy Adm Dennis Blair to be his Director of National Intelligence.
He led anti-terrorism efforts in South-East Asia as chief of the navy's Pacific Command after the 9/11 attacks.
The selection of Mr Panetta is the the last major appointment for the incoming Obama administration, which takes office on 20 January.
Mr Obama faced the challenge of finding someone well acquainted with intelligence operations but not associated with the decision to allow extreme interrogation methods - which many consider to be torture - on terrorist suspects, correspondents say.
A CIA insider thought to be Mr Obama's first choice, John Brennan, withdrew his name amid criticism that he was not critical enough of Bush administration policies.
'No middle ground'
In a January 2008 article for Washington Monthly magazine, Mr Panetta expressed his opposition to the use of torture.
"Those who support torture may believe that we can abuse captives in certain select circumstances and still be true to our values," he wrote.
"But that is a false compromise. We either believe in the dignity of the individual, the rule of law, and the prohibition of cruel and unusual punishment, or we don't. There is no middle ground."
Mr Panetta, 70, was President Clinton's chief of staff between 1994 and 1997, headed the Office of Management and Budget, and spent eight terms as a member of Congress.
More recently he was a member of the bipartisan Iraq Study Group, which studies recent US intelligence failures.
"It is true that he doesn't have an intelligence background. But he certainly dealt with intelligence. In the Iraq Study Group, we dealt with it every day. He certainly dealt with it as chief of staff," said Democrat Lee Hamilton, who chaired the group.
But Senator Dianne Feinstein, who will oversee the confirmation hearing for Mr Panetta as chairwoman of the Senate intelligence committee, said she had not been notified about the choice.
"I know nothing about this, other than what I've read. My position has consistently been that I believe the agency is best served by having an intelligence professional in charge at this time," she said.
The top Republican on the committee, Senator Christopher Bond, expressed similar scepticism.
"Job number one at the CIA is to track down and stop terrorists. In a post 9/11 world, intelligence experience would seem to be a prerequisite for the job of CIA director," he said.
"I will be looking hard at Panetta's intelligence expertise and qualifications."
As CIA director, Mr Panetta would report directly to the director of national intelligence.
Mr Obama's choice for that post, Adm Blair served as Commander-in-Chief of US Pacific Command, the highest-ranking US officer in the Asia-Pacific region.
Adm Blair, who retired from the navy in 2002, previously worked at the CIA as associate director for military support.