Kim Leadbeater said she was "overwhelmed and humbled" by the support she had received from party members in the seat her sister used to represent.
Labour leader Sir Keir Starmer who said her roots in the community would make her a "fantastic champion" for the constituency.
The latest by-election is to be held after Tracy Brabin - who was elected Labour MP for Batley and Spen in a 2016 by-election after Jo Cox's death - won the 2021 West Yorkshire mayoral election earlier this month.
Kim was selected from a shortlist of three candidates when local Labour members attended an online hustings meeting on Sunday afternoon. (May 23)
Kim said after being selected: " I am overwhelmed and humbled by the support and faith from members in Batley and Spen.
"I'm ready to hit the ground running and take Labour's campaign to local people.”
During the meeting, Kim told members: "I’m a proud Yorkshire woman and have lived in Batley and Spen all my life.
"I have a deep understanding of the area, its people and some of the challenges it faces.
"I feel passionately about the strength there is in such a diverse constituency.
“I'm the candidate the Tories fear. They know that I have a proven track record of getting things done at a local level and an established reputation for working for all parts of the community.
“I have lived in almost every part of the constituency during my life - Heckmondwike, Batley, Cleckheaton, Gomersal, Liversedge, Staincliffe and Littletown – places candidates from other parties probably haven’t even heard of.
“We need strong northern voices at Westminster. People rooted in their communities. I will work to represent people across the whole constituency.
“Nobody should be in any doubt about the scale of the task we have to keep Batley and Spen Labour.
"The spotlight will be on us – but I want to show the world that both the Labour party in Batley and Spen and our community are strong and proud.”
Keir Starmer, Leader of the Labour Party, said: "I am delighted that Kim has been selected to stand in the Batley and Spen by-election.
"Her roots in the community will make her a fantastic champion for Batley and Spen, tackling the issues local people are raising.
"Batley and Spen holds an important place in the Labour Party's heart. And Kim's work to bring people together, just as her sister Jo Cox did, has inspired us all.
"The people of the constituency know Kim well, admiring her hard work in the community and her determination to build a fairer, kinder society. I look forward to joining her on the campaign trail."