The announcement of the reinstatement met the chief demand made by political parties and lawyers groups, Associated Press of Pakistan reported.
"I restore the deposed chief justice and others according to the promise made by me and the president," Gilani said in a televised address, adding, "a notification to this effect is being issued now."
After the announcement, Pakistan Muslim League-N leader Nawaz Sharif called off the long march after consulting with leaders of the lawyers community, APP said.
Gilani said Chaudhry will replace Justice Abdul Hameed Dogar when he retires March 21. Chaudhry was removed from office by former President Pervez Musharraf in 2007, sparking protests that led to Musharraf's resignation in August.
President Asif Ali Zardari had pledged to reinstate judges sacked by Musharraf without disturbing the current court, APP reported.
The announcement was greeted by celebrations by lawyer groups outside the home of the chief justice, APP reported.