List MP Hekia Parata will replace Pansy Wong as Minister for Women's Affairs and Ethnic Affairs.
She will take over Wong's women's and ethnic affairs portfolios as well as the associate role for ACC, energy and resources. She will also be appointed an associate minister in the community and voluntary portfolio headed by Maori Party co-leader Tariana Turia.
Parata was elected as a National list MP in 2008 and stood for the party in the Mana by-election last month where she reduced Labour's majority in the traditional red seat.
Key said her outstanding campaign in Mana was evidence of her competence and ability.
"Mrs Parata has a strong background in the public service and has also been a successful businesswoman.''
She will be a minister inside Cabinet.
Wong resigned from Cabinet after it was revealed she witnessed the signing of a contract for her husband's business while on a taxpayer-subsidised trip to China.
MPs and spouses accessing the subsidy are not allowed to undertake private business
An independent report into her use of the subsidy found she, and her husband Sammy, did not regularly misuse the travel allowance but should repay $474.12 for part of the trip to China, which Wong was found guilty of misusing.
Prime Minister John Key today announced Parata would be sworn in as a Cabinet minister on Wednesday.
Whatever way you look at it, Hekia Parata was a loser In the Mana by-election even if she reduced Labour's majority there; something that was expected anyway.