Moscow has hailed Mr Kadyrov as having "the greatest authority in Chechnya", while rebel forces have branded him a traitor.
The Muslim leader fought against Russia during the first Chechen war in 1994-96, but has been in direct contact with Moscow during the current campaign.
He played a role in last year's talks to allow Russian troops to enter Chechen towns without a fight.
Mr Kadyrov is the first Moscow-appointed Chechen to lead the region in four years.
Controversy
The chairman of Russia's upper house of parliament, Yegor Stroyev, made the announcement after discussions with President Vladimir Putin.
Mr Stroyev has said Mr Kadyrov is the most influential person in Chechnya.
But many Chechens distrust Mr Kadyrov, regarding him as a Kremlin puppet.
Chechnya's pro-independence elected leader Aslan Maskhadov has branded him as a traitor and called for the death penalty against him.
The relations between the cleric and the rebels in Chechnya have been strained for months.
Mr Maskhadov dismissed Mr Kadyrov as the republic's top mufti last year after the cleric met Mr Putin, who was then Russia's prime minister.
Mr Maskhadov called him the "enemy of the Chechen people".
But the Kremlin continues to regard Mr Kadyrov as Chechnya's Muslim leader.
Attack
Mr Kadyrov alleged last month that Mr Maskhadov was behind a planned attack on his life.
The mufti reportedly has been the target of three assassination attempts in the last two years.
The Russian military in Chechnya claimed last year that the Chechen guerrillas promised to pay $100,000 for Mr Kadyrov's head.
Mr Putin has introduced rule by decree in Chechnya, suspending its status as one of the 89 republics of the Russian federation by denying it the right to elect its own government.
The move is still to be approved by parliament, but it underlines the Kremlin's determination not to grant Chechnya independence.
Moscow has been searching hard for a loyalist Chechen to lead the region where anti-Russian sentiments are strong.
Russia has refused to negotiate with Mr Maskhadov since it sent its troops into Chechnya last October, but indicated its willingness to negotiate with Mr Kadyrov.
Previous Kremlin efforts to set up a pro-Moscow government in Chechnya have had little success.