"No one in my administration has had to make more important decisions more quickly than Bill," Obama said. "There is no question that I'm going to deeply miss having Bill by my side."
Lew, Obama said, "has my complete trust."
The change is occurring as the White House gears up for Obama's re-election campaign with the economy still struggling to gain steam and the unemployment rate at 8.5 percent.
Republican National Committee Chairman Reince Priebus said in a statement that Daley's departure "makes it even more clear every decision is being made through the lens of re-election" at the White House.
Priebus said Daley had been hired to bridge a divide between Obama and U.S. business and "found himself trying to defend the indefensible" with the administration's policies.
New Confrontation
Obama ratcheted up tension with congressional Republicans last week by installing Richard Cordray as head of the Consumer Financial Protection Bureau and three members of the National Labor Relations Board through recess appointments. Republicans had used procedural maneuvers to block Cordray's confirmation.
Lew will be Obama's third chief of staff. His first, Rahm Emanuel, resigned last October to begin his successful run to succeed Daley's older brother, longtime Chicago Mayor Richard M. Daley, who retired.
Lew brings continuity as a key member of Obama's existing team and deep relationships from a long career in Washington that can be used either to ease negotiations with Republicans or strengthen partisan unity in battle, Galston said.
Congressional Relations
"If the name of the game politically is close coordination with the Democratic congressional leadership to respond tactically to whatever the controversies are or whatever the openings happen to be, I would expect him to be quite good at that," Galston said.