The Hungarian, 47, led Hearts to third in the Scottish Premier League in 2008/09 after a stint as Uganda coach and at the helm of Budapest side Ferencvaros.
"Members of the executive committee were united over the choice of the coach... we decided that Laszlo is the best candidate given his experience and strategy presented," Liutauras Varanavicius, the head of the Lithuanian football federation, said in a statement.
Raimondas Zutautas quit in November after his side were thumped 4-1 at home by the Czech Republic in their final Euro 2012 qualifier, leaving them fourth in their five-team group.
Lithuania face Slovakia in September in their first qualifying match for the 2014 World Cup.
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