She takes charge of a ministry that has proven a poisoned chalice for several recent predecessors, facing the additional pressure of demands from U.S. President Donald Trump for Germany to boost its military budget.
Maneuvering AKK into the defence job, her first cabinet post, could increase the CDU leader's political clout in Berlin.
However the 56-year-old's appointment to the hard post on Tuesday evening came as a surprise to some, after she came under strong criticism for the CDU's poor results in May's European Parliament election. She will lead a weekly Cabinet meeting on Wednesday.
Before Kramp-Karrenbauer, who is widely seen as the chancellor's chosen heir, was announced as the new minister, Merkel had said there would be a "very fast replacement".
Ms Kramp-Karrenbauer's surprise switch to the Defence Ministry was confirmed by the government and the Christian Democratic Union (CDU) party. The defense ministry offers Kramp-Karrenbauer a chance to gain foreign policy experience but also is notoriously hard to run. "You can not leave that open for long", said Merkel on Tuesday.
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"I deliberately chose to move from a state office to a party office".
The Green security politician Tobias Lindner told the Passauer Neue Presse that the new leadership in the defense ministry should "urgently fix the damaged relationship with the troops" in the German armed forces.
Ms Kramp-Karrenbauer's political fortunes have waned after a series of gaffes this year. "There is a lot to do in the CDU", Kramp-Karrenbauer recently told the German newspaper Bild.
But she has failed to connect effectively with voters, many of whom see her as out of touch, and came in for strong criticism after the party's record-low performance in the European parliamentary elections in May.