LONDON--Mark Carney, who currently runs Canada's central bank, will be the next governor of the Bank of England, the British government announced Monday, a surprise pick that underscores U.K. officials' thirst for fresh blood at the powerful institution.

The bombshell announcement, which Chancellor of the Exchequer George Osborne delivered to Parliament on Monday afternoon, represents a major break from tradition in the U.K., which traditionally has picked fixtures of the British establishment to be governor. Mr. Carney beat out longtime Bank of England veteran Paul Tucker for the job.

Mr. Carney will become the 120th governor of the Bank of England just as it inherits sweeping new powers, making it one of the world's most powerful central banks and boosting the governor's status as one of the U.K.'s most powerful individuals. In addition to setting interest rates and shepherding the U.K.'s monetary policy, the central bank is slated to assume responsibility for regulating the U.K.'s massive banking and financial system.

The new governor will have to confront a series of challenges. The U.K. economy has flat-lined. The British banking system remains fragile, with two top banks largely owned by taxpayers.

The 47-year-old Mr. Carney, who became governor of the Bank of Canada in 2008, is a well-regarded central banker. He is chairman of the Financial Stability Board, the group of central bankers and top policymakers responsible for hammering out global agreements meant to improve the stability of banks and the overall financial system.

Mr. Carney is "the most qualified person in the world to be the Bank of England's governor," Mr. Osborne said in announcing the appointment. He is "acknowledged as the outstanding central banker of his generation."

But Mr. Carney's odds of getting the job dipped when he repeatedly said he wasn't interested in the job.

Mr. Osborne's announcement on Monday was the culmination of a seven-week search process that got underway with the Treasury placing a job advertisement in The Economist magazine. The search drew applications from a wide variety of hopefuls. They ranged from longshot publicity seekers, such as an editor with the U.K.'s Sun tabloid newspaper, to longtime fixtures of the British establishment, such as Adair Turner, the chairman of the Financial Services Authority.

The governor-selection process has been overseen by a four-person panel, made up of the three highest-ranking civil servants in the Treasury and the chairman of the central bank's supervisory body.

After interviewing a shortlist of candidates, the panel made their recommendation to Mr. Osborne. He then made his decision after consulting with Prime Minister David Cameron, a Conservative Party colleague, as well as Deputy Prime Minister Nick Clegg, the leader of the junior coalition partner, the Liberal Democrats.

Unlike in the past, the appointment is supposed to be for eight years. But Mr. Osborne said that Mr. Carney will only serve five of those years. The move to one, long period in charge of the institution is designed to protect the governor from political influence.

Write to David Enrich at David.Enrich@wsj.com; write to Jason Douglas at Jason.Douglas@dowjones.com; write to Cassell Bryan-Low at Cassell.Bryan-Low@wsj.com

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