The 45-year-old former European Footballer of the Year, who had been strongly linked to the post in recent weeks, becomes ambitious Litex owner Grisha Ganchev's 11th coach since June 2004.
Ganchev said the contract had no specified duration and Stoichkov could stay "as long as he wishes."
"This man has brought me such joy that I can't compare it with anything in the world," said Ganchev. "I've always dreamed Stoichkov would be coach of our team and I hope he'll help our young players get close to his class."
Stoichkov, who has never coached a club in his native country, replaces Atanas Dzhambazki, who parted company with the Lovech-based side on Tuesday after limited success during his 71-day tenure.
"Our goal is to win the Bulgarian Cup and to play in Europe [next season]," the former Barcelona player and European Cup winner told a news conference. "And no doubt, we'll be searching for the win in every single match."
Stoichkov aimed to revive wealthy Litex's title hopes. They are seventh in the championship standings at the mid-season break, 11 points behind surprise leaders Ludogorets.
NOTHING TO PROVE
Stoichkov, who turns 46 next month, was a key member of Barcelona's "Dream Team" that won the Spanish title four times in succession in the early 1990s under Dutch coach Johan Cruyff.
The striker also helped Barca win their first European Cup in 1992.
Stoichkov won the hearts of Bulgarians for being instrumental in leading their national team to the semi-finals at the 1994 World Cup in the United States - the Balkan country's biggest achievement in its football history.
'The Dagger', as Stoichkov is known in Bulgaria, has so far been unable to match his playing achievements as a coach.
A three-year spell in charge of Bulgaria ended in failure to reach the 2006 World Cup finals and he then left Spanish club Celta Vigo within a few months of taking the job.
In 2009 he joined South African club Mamelodi Sundowns and led them to second place in the league but resigned at the end of the season after failing to win a contract extension.
The coach, well known in his playing days for his aggressive manner on the field and frequent arguments with referees and other players, was determined to do things his way at Litex.
"I have nothing to prove to anyone but God," he said. "You know that Litex are a great team and we'll be as strong as you know us."
Stoichkov, who in 1994 became the only Bulgarian to be named European Footballer of the Year, has recently worked as an adviser for top-flight Russian club Rostov.
