The decision came less than two weeks after Brazil's top election tribunal ruled that the popular former president cannot run while serving a 12-year prison sentence for corruption.
The switch was approved at a meeting of Lula's Workers Party in the southern city of Curitiba, where the former president has been held since April.
Haddad, a former mayor of Sao Paulo who also served as Lula's education minister, faces a race against time with the first round of voting on 7 October.
He will be up against right-wing populist Jair Bolsonaro, who is currently out front at 26 percent in the opinion polls.
Bolsanaro is in hospital after being stabbed at an election rally.
Haddad's ability to hold on to Lula's base will be key if he and his expected runningmate, youthful communist Manuela d'Avila, are to reach the second round, set for 28 October.
Lula, a former engineering worker, made history by becming the country's first working-class president.in 2003 but has been jailed in a corruption case he claims is politically motivated.