Maninagar is a Modi stronghold - in 2007 he defeated the Congress candidate by around 75,000 votes. He has held the seat since 2002.
Mrs Bhatt filed her nomination papers today. She has reportedly already begun campaign against Mr Modi, who is looking at a third consecutive term at the helm in Gujarat. The state goes to polls in two phases - December 13 and 17. The votes will be counted on December 20.
"Yes, I will be fighting against Narendra Modi from Maninagar on a Congress ticket," Mrs Bhatt said.
"We have moved far away from democracy in Gujarat and to restore it, everyone has to do whatever they can. Fighting against Modi is the logical step in our quest for democracy and to curb anti-democratic forces," she said.
Mr Bhatt is best known for alleging that Mr Modi had asked the state police to go slow against rioters in the 2002 Gujarat riots. In an affadavit in March last year, he told the Supreme Court that he was present at a meeting in February 2002 after the Godhra train burning incident, where, he alleged, the CM said rioting mobs attacking largely Muslim neighbourhoods should be allowed to "vent their anger".
The chief minister and other police officers, who were part of the meeting, have said Mr Bhatt was not present at the session where he alleges that Mr Modi made these comments.
Mr Bhatt has claimed that he was persecuted for taking on Mr Modi. He was suspended in August last year by the state's Home Ministry for not showing up at work, for misusing his official car, threatening a constable and for involvement in an Arms Act case.
On November 26, this year, the Supreme Court stayed all proceedings against Mr Bhatt in an FIR filed by Gujarat Advocate General Tushar Mehta that he had hacked his email account and extracted important information.
(With PTI inputs)