Dostum, one of Afghanistan's most powerful and controversial commanders, is accused of committing human rights abuses during the country's civil war in the 1990s. His forces are also accused of having let hundreds of Taliban fighters suffocate to death in late 2001 after their capture.
He has denied the allegations.
It was not immediately clear why Karzai made the appointment, but some say he may be trying to bolster support ahead of parliamentary elections this year. Dostum remains popular in northern Afghanistan among his fellow ethnic Uzbeks -- although many in the rest of the country say they do not trust him.
Dostum helped the United States oust the Taliban in late 2001 and served as a deputy defense minister in the Afghan interim government. He also ran against Karzai in the presidential vote in October and placed fourth, with some 10 percent of the vote.
Brad Adams, Asia director for Human Rights Watch, said that whatever Karzai's reason, the appointment was a step backward.
"General Dostum has a long record of violence," Adams said. "He probably has presided over war crimes in the past, so his appointment is astonishing. Dostum is one of the main warlords in the county. He runs his section of the country with an iron fist, tolerates no opposition and has been involved in illegal activities for many years. So this may be some kind of tactical alliance with Karzai but it's a terrible decision."
Karzai so far has played down concern over Dostum. His spokesman, Jawed Ludin, said yesterday in Kabul: "Let's not talk about [Dostum's rights record] because that's a completely different issue."
Adams said that Dostum's appointment might be a sign that the Karzai government is not really ready to confront warlords.
"I think it tells people that the main human rights abusers of the last couple of decades are not going to be held accountable, but are actually being embraced by what was suppose to be a reforming government," Adams said. "So I think it calls in the question whether this really is a reforming government or whether it's just on the path of more of the same."
A recent survey by the Afghan Independent Human Rights Commission showed that most Afghans say they have been victims of human rights abuses in the past two decades of war and that most want to see the perpetrators brought to justice.
Karzai has already given another influential warlord, Ismail Khan, the former governor of Herat Province, a post in his cabinet. Reports said Dostum's role will be mostly symbolic.
For an in-depth profile of General Dostum, click here.