By Jeff Mason and Caren Bohan
WASHINGTON (Reuters) - President Barack Obama said on Monday his budget chief Jack Lew would take over as White House chief of staff, replacing former businessman Bill Daley, who is stepping down after a troubled one-year tenure.
Though popular with staff, Daley alienated parts of Obama's liberal-leaning base, particularly Democrats in Congress, who bristled at presidential criticism that grouped them together with the Republican opposition.
Lew, who served as budget director under President Bill Clinton and was a deputy to Secretary of State Hillary Clinton, has strong relationships with lawmakers. He was instrumental in negotiating a deal with Republicans last summer to raise the U.S. debt ceiling and avert a first-ever default.
Obama told reporters at the White House that Daley had approached him about resigning last week. Obama said he first rejected the offer, asking Daley to think it over.
Daley decided it was time to return to his native Chicago. Obama's first chief of staff, Rahm Emanuel, is now mayor there.
"There is no question I'm going to miss having Bill at my side at the White House," Obama said. "I plan to continue to seek Bill's counsel in the months and years to come."
Daley handed over day-to-day White House management duties in November to another Obama aide, Pete Rouse, setting the stage for his resignation two months later. He was in the job for roughly a year.
A former businessman and U.S. commerce secretary, Daley took over as Obama's top aide last year with a mandate to improve relations with the corporate community and streamline White House operations.
Relations with business remained rocky, however, and lawmakers complained that his outreach to Capitol Hill was minimal.
Lew's management skills and calm demeanor are prized within the Obama administration. The soft-spoken manager fits in with the "No Drama Obama" attitude the White House and Obama's presidential campaign like to project.
WORKING WITH DEMOCRATS
A senior Democratic congressional aide said Lew works well with Democrats in Congress, many of whom felt Daley seemed more interested in cutting deals with Republicans than protecting their concerns.
"Lew has great relationships on the Hill and it's virtually impossible to see him making the same mistakes his predecessor did," the aide said.
One analyst said the timing of Obama's announcement was good while public attention remained on the Republican presidential nominating battle.
"This is a good time for a shake-up, since public attention is focused on the GOP, thereby diminishing the chances this will become a story about unrest in the White House," said Princeton University history professor Julian Zelizer.
"This is part of President Obama's effort to display a new direction in his administration, listening more closely to the critics on the left who say that he has maintained too close of a relationship with the big business community. Daley comes from this world."
(additional reporting by Matt Spetalnick and Thomas Ferraro; Editing by Paul Simao and Philip Barbara)