He served as a Labour MP for Hartlepool from 1992 to 2004, during which time he served as secretary of state for Northern Ireland and business secretary.
His appointment comes ahead of the inauguration of President-elect Donald Trump in January.
A government source said: “The fact the prime minister has chosen to make a political appointment and sent Lord Mandelson to Washington shows just how importantly we see our relationship with the Trump administration.
“We’re sending someone close to the prime minister with unrivalled political and policy experience, particularly on the crucial issue of trade. He’s the ideal candidate to represent the UK’s economic and security interests in the USA.”
Both the White House and Trump campaign were notified of the appointment in advance.
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