The Pakistan Muslim League-Nawaz (PML-N) party also elected Nawaz as "leader for life", in what will be seen as a provocative move and could anger the judiciary after last week's Supreme Court verdict that removed Sharif as party leader.
In July, Pakistan's top court had ended Sharif's third stint in power for not declaring a small source of income, and the former leader could end up in jail if he is convicted in a separate corruption trial expected to wind up soon.
Shahbaz's elevation as party president will further fuel suggestions that he will replace Sharif loyalist Shahid Khaqan Abbasi as prime minister if the party sweeps back to power at general elections due in the summer.
"A meeting of the party's General Council will be held on March 6, which would elect Shahbaz as the permanent president," said senior party official Mushahidullah Khan.
"Nawaz Sharif will work as a life leader of the party."
Despite Nawaz Sharif's legal woes, the 68-year-old has maintained a tight grip on the party.
Relations between the ruling party and the judiciary have plummeted since Sharif's ouster in July, with several party officials facing contempt of court notices.
Sharif and party officials have painted the Supreme Court verdicts as judicial overreach and a political conspiracy, insinuating that elements of Pakistan's powerful military establishment are working against the party because Sharif challenged their power. The military denies playing a role.
When the Supreme Court ruled against Sharif and ordered his removal from the post of party leader, the verdict also barred Sharif's chosen candidates from contesting next week's senate elections under the party banner.
The court order overturned a legal amendment by party lawmakers allowing Sharif to stay party president despite being disqualified from public office by the Supreme Court for failing to declare monthly income of 10,000 Emirati dirham ($2,723) from a company owned by his son.
Sharif had served as prime minister twice before and each time was removed from office - in 1993 by a presidential order, and in 1999, by a military coup that saw him jailed and later exiled before he returned when General Pervez Musharraf stepped down.