Merkel's conservatives replace farm minister who quit over leak
Schmidt comes from the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democrats, as does Hans-Peter Friedrich, who was forced to resign last Friday for leaking information to the SPD when he was interior minister.
German head of state Joachim Gauck will swear in the new minister later on Monday, the president's office said.
Schmidt, 56, was a deputy defence minister from 2005 to the end of last year, when he was named deputy development minister in the new coalition government between the conservatives and the Social Democrats (SPD).
(Reporting by Stephen Brown; editing by Erik Kirschbaum)