The news follows chairman and America Online founder Steve Case's reluctant decision earlier this week to resign from the company. He steps down as chairman on May 16.
Case has been forced from his position as chairman after doubts over his ability to run such a business. In a statement released by the company, Case said: "I would love to serve as chairman of this great company for many years to come," but admitted that his presence had become a "distraction".
Parsons, who succeeded Gerald Levin as chief executive last year, has been at the company since 1995 when he joined as president. He was later made co-chief operating officer where he worked alongside Bob Pittman to integrate Time Warner with AOL when the two companies merged in 2000.
Parsons said in a statement: "As we address the challenges facing our company and the industries in which we operate, I will work together with the extraordinary people in this company to focus on increasing value for our customers and our shareholders."
In his new role, Parsons is likely to have to fend off calls for the demerger of AOL Time Warner.
Two years on from the deal it is largely seen as a failure, despite being hailed as a triumph at the time because it saw new and old media brought together under one roof.
The company may also face opposition to the decision to combine the chief executive and chairman roles from Wall Street, which is keen to keep them separate in the wake of financial scandals such as WorldCom and Enron.
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