The former Valencia and Atletico Madrid striker resigned as boss of Litex's rivals CSKA Sofia in January after failing to offer a guarantee that he could take the club to the title.
"It wasn't a difficult decision," said Penev, who signed a one-year contract. "I know Litex are a well-organised club who aim high. But I'm always chasing the first place too."
"I know we'll have to work hard from now on but I'm sure we'll achieve good results."
The 44-year-old comes in for Angel Chervenkov, who was sacked following an early Champions League's exit last month and replaced on a caretaker basis by Petko Petkov.
Penev's debut as Litex coach will be an emotional return to CSKA on September 11.
"I don't have to look back now," he said. "I parted with CSKA and now I only look forward."
