Nawaz Sharif was last month also barred from leading a political party following his disqualification by the Supreme Court in the Panama Papers scandal in July last year.
Shahbaz was elected unopposed as no one filed nomination papers against him during the Pakistan Muslim League-Nawaz's or PML-N general council meeting held in Islamabad.
Addressing the meeting after his election, Mr Shahbaz thanked the party for its confidence in him but said he could not even think about taking the place of his brother.
"Nawaz Sharif can be considered the political heir of Quaid-i-Azam (Jinnah) and we are lucky to have been blessed with a leader like Nawaz Sharif," he said.
Shahbaz was appointed as interim president on February 27 in a special party meeting which also appointed Nawaz as 'Quaid' for life, a symbolic post to honour him.
Analysts believe that Nawaz Sharif still calls the shots and his younger brother would just be a figurehead while real decision making would stay with the ex-premier despite his bar on becoming the legal head of the party.