The SDP party council and parliamentary group chose the member of parliament from Kotka for the office.
The portfolio also oversees matters pertaining to the government’s ownership steering.
Paatero assumes the docket vacated by Pekka Haavisto of the Vihreä Liitö (Green League) which left the coalition government.
On Wednesday, the Kansallinen Kokoomus (National Coalition Party) selected Sanni Grahn-Laasonen to become the new environment minister. Laasonen succeeds Ville Niinistö, the chair of the Green Party as the minister of the environment.