Khalilzad, who is Afghan born, has served also as ambassador to Afghanistan. He is likely to be replaced in Baghdad by Ryan Crocker, a veteran American diplomat, said the official, who spoke on condition of anonymity because he was not authorized to make an announcement for the White House.
Khalilzad would replace John Bolton, whose appointment to the U.N. job expired recently.
The changes come as Bush is expected to announce awar next week.
He is also shuffling other pieces of his national security team. He is preparing to announce that John Negroponte, the director of national intelligence, will become the No. 2 official at the State Department and will be replaced by retired Vice Adm. Michael McConnell.
The appointments must approved by the Senate.
Bush was unable to drive Bolton's confirmation through the Senate, which under Republican control approved Khalilzad for his current job. Bolton's style is more acerbic than Khalilzad's.
Khalilzad, an unusually outspoken diplomat known as a protege of Vice President Dick Cheney, would take the U.N. seat at a time when the world body is in the spotlight in confrontations with Iran, North Korea and in the Middle East.
Khalilzad's move from Iraq to the U.N. has been rumored for months, along with the expectation that Crocker, now ambassador to Pakistan, would succeed him in Baghdad. ABC News first reported Thursday that Bush had made the decision.
The U.S. official said some minor details still must be worked out on Crocker, but they are considered manageable.
Crocker was a senior U.S. representative in Baghdad for several months in 2003, shortly after the U.S. invasion that toppled President Saddam Hussein.
A White House favorite whom Bush calls by his nickname, "Zal," Khalilzad has worked in two other Republican administrations, those of Ronald Reagan and Bush's father, George H.W. Bush.
The highest-ranked Muslim to serve in the Bush administration, Khalilzad headed the Bush-Cheney transition team for the Defense Department in 2000 and served as a counselor to former Defense Secretary Donald H. Rumsfeld.