U.S. President Barack Obama will soon nominate CIA Director Leon Panetta as secretary of defense to replace outgoing Robert Gates, a senior Obama administration official said Wednesday.

Gen. David Petraeus, commander of U.S. forces in Afghanistan, will be appointed to Panetta's replacement, the official told a conference call, asking anonymity.

Obama will announce his national security personnel reshuffle Thursday, the official said.

Panetta will likely take over in July after undergoing a Senate confirmation hearing as Gates has expressed his intention to retire June 30.

Gates, the only Bush administration Cabinet member who maintained his or her post under the Obama administration, has said he will retire by the end of this year.

Obama apparently picked Panetta due to his expertise in dealing with budgets as the U.S. president is pressing hard for budget cuts.

Panetta served as the director of the White House Office of Management and Budget under the Clinton administration and as a congressman focusing on budget issues. He was also President Bill Clinton's White House chief of staff.

Gates, who has come up with US$400 billion in defense budget cuts for the coming decade under Obama's direction, has been lukewarm to any further budget cuts for the U.S. military, waging costly wars in Afghanistan and Iraq.

Obama recently announced his plans to reduce the federal budget deficit by US$4 trillion in 12 years with military and domestic spending cuts, tax increases for the wealthy and health care overhaul.

Congressional Republicans have proposed a deeper cut of $6 trillion over a decade and have refused to raise the government's borrowing limit without commitments to deep cuts in long-term deficits.

The U.S. federal deficit is expected to surpass the $14.3 billion borrowing ceiling in the next few months, with the deficit likely to reach $1.4 trillion for this year alone.

The deficit prompted Standard and Poor's last week to revise the outlook for the U.S. from stable to negative, warning that it may lower the U.S. rating of Triple AAA, the highest rating, unless the budget problem is resolved.

Panetta has expressed concerns over the ongoing succession process in North Korea resulting in provocations against South Korea.

In June, he linked the North's torpedoing of a South Korean warship months earlier to an attempt by North Korean leader Kim Jong-il's youngest son and heir apparent, Jong-un, to rally support from the military.

"Our intelligence shows that at the present time there is a process of succession going on," Panetta said at the time. "I think that could have been part of it, in order to establish credibility for his son. That's what went on when he took power. His son is very young. His son is very untested. His son is loyal to his father and to North Korea, but his son does not have the kind of credibility with the military."

Kim Jong-il himself was behind the downing of a Korean Air plane that killed all 115 passengers aboard in 1987 while he was being groomed to succeed his father, Kim Il-sung. Kim Il-sung, the North's founding father, died of a heart attack in 1994.

In 2009, Panetta described North Korea as "one of the most difficult and unpredictable threats that we face in that part of the world."

While speaking to a Senate hearing in February 2009 to confirm him as CIA director, Panetta expressed skepticism about North Korea's intentions for denuclearization.

"We know North Korea detonated a nuclear weapon in 2006," he said at the time. "But we don't know whether Kim Jong-Il is prepared to give up that nuclear capability once and for all."

(Yonhap)