The vote was narrow, with Mr Jaafari winning with 64 votes, just one more than Vice President Adel Abdel Mahdi, following weeks of wrangling.
The close poll indicates divisions within the United Iraqi Alliance (UIA), according to analysts.
Mr Jaafari's appointment is to be formally sealed by a new three-member presidential council, which will be selected by two-thirds of the 275-member parliament, when it sits in the next two weeks.
His 10-month term has been marked by a persistent insurgency, something he said he would continue to tackle in his next term.
Cooperation urged
After his victory, Mr Jaafari said the violence is the priority of the next government, "followed immediately by the improvement of the economy, the increase of services offered Iraqis and the rebuilding of the country."
"I ask all the other election lists to participate with us to build our new house," he added.
Defeated candidate Mr Mahdi indicated the umbrella UIA, which brings together a number of parties, has formed committees to negotiate with other lists, saying the next government could be formed by late February or early March.
The UIA, which won landmark parliamentary elections held in mid-December, had delayed a decision on a candidate until Sunday, after failing to reach agreement on Saturday.
Mr Jaafari must win the support of Sunni and Kurd politicians, with some dissatisfied over his micro-management style of rule and tendency to monopolise power, according to AFP.
His transitional government has been accused of discriminating against Sunnis.
The UIA was confirmed on Friday as the winner of the December 15 poll, paving the way for the first full-term government to be formed almost three years after the US-led invasion of Iraq that ousted Saddam Hussein.
It won 128 of the 275 parliamentary seats, while an alliance of Sunni and secular groups, the Joint Council for National Action, won 80 and the Kurdish Alliance won 53.
Mr Jaafari, 57, is a former doctor.
His Dawa party battled the Saddam regime for decades.
He is seen as a religious Shiite with close ties to Iran, and has failed to convince insurgents, mostly Sunnis, to stop their attacks.
Violence continues
Meanwhile, at least 12 Iraqis were killed, including a baby girl, and about 20 people wounded in a string of rebel attacks, security officials said.
A suicide bomber wearing an explosives belt blew himself up near a police checkpoint in southern Baghdad, killing two police commandos and a woman.
Near the refinery town of Baiji, gunmen shot dead four oil inspectors in drive-by attack, while another two people were killed, including an 18-month-old infant, in a roadside bombing in northern Baghdad.
Saddam hearings to resume
Saddam Hussein is set to face court again, and the chief prosecutor said he may be forced to attend if he continues to boycott proceedings.
His trial, along with seven co-defendants, will resume in Baghdad after an 11-day break.
The former leader failed to turn up for the last two hearings after some of the defendents staged a walkout on January 29.