Sixty-two-year-old Khatri replaces Rita Bahuguna Joshi as the state Congress chief, who had tendered her resignation following the defeat.
Khatri is considered as a non-controversial figure in the faction-ridden state unit.
After the party bagged 22 of the 80 Lok Sabha seats in the state in 2009, the assembly poll result was a big dampener for the Congress.
The Congress won only 28 seats in the 403-member House, just six more than what it had got in 2007 assembly elections. The party had contested the polls in alliance with Ajit Singh's Rashtriya Lok Dal.
The appointment of Khatri follows a report of the A K Antony Committee, which went into the poll debacle as also the consultations held by Rahul Gandhi with party members of Parliament and members of Legislative Assembly after the poll verdict.
A good show in Uttar Pradesh, the home turf of the Gandhi-Nehru family, in 2009 had helped the Congress cross the 200-mark in the Lok Sabha.
The Congress has already replaced its Congress Legislative Party leader Pramod Tiwari with Pradip Mathur. Tiwari has been in the post for nearly 20 years.
A former state Youth Congress president and general secretary in the UP Congress for some time, Khatri is a special invitee to the Congress working committee and is member of the Joint Parliamentary Committee going into the 2G scam.