"I expect him to push all our forces to keep adapting and innovating," Obama said making the announcement at the White House.
Currently the Army Chief, 59-year-old Dempsey needs to be confirmed by the Senate before taking over the new position.
"With nearly 40 years in uniform, Dempsey is one of our nation's most respected and combat-tested generals," Obama said.
With extensive combat experience, Dempsey served as commander of the 1st Armored Division in Baghdad in 2003, and then helped train Iraqi security forces in a subsequent tour of duty in Iraq.
Dempsey served as acting commander of the US Central Command overseeing military operations in the Middle East, Persian Gulf and Central Asia.
Obama also announced that Admiral James A. "Sandy" Winnefeld Jr. would be Vice-Chairman of the Joint Chiefs of Staff and Gen. Ray Odierno the new Army chief of staff.
"We will provide what it takes to achieve our objectives in the current fight," he said urging the Senate to confirm his nominations as soon as possible.
Defence Secretary Robert Gates said he "enthusiastically" supported President Obama's choices to fill these key military positions.
Gates said General Dempsey, Admiral Winnefeld, and General Odierno have all excelled in key command and staff roles within their services and in the joint arena.
"They possess the right mix of intellectual heft, moral courage, and strategic vision required to provide sound and candid advice to the President and his national security team," he said.
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