At a convention in Tours, the elder Le Pen, 82, bid farewell to the movement he founded in 1972, Radio France Internationale reported.
"I entrust you with the destiny of our movement ... its unity, its pugnacity," he told his daughter.
Marine Le Pen, 42, won a vote of 24,000 party members over Bruno Gollnisch. In recent polls, she has the support of 17 percent French voters for the 2012 presidential election. In 2002, Jean-Marie Le Pen shocked the country by coming in second in the first round.
Marine has been trying to moderate the party's image, although last month she compared French Muslims praying in the streets outside overcrowded mosques to the Nazi occupation.
In his defiant farewell speech Saturday, the elder Le Pen repeated that "unceasing immigration" threatens France.
"All my comments were distorted from their true meaning. ... because I refused to submit to the dictatorship of the thought police," the BBC quoted him saying.