The 51-year-old US leader was revealed to have been chosen for the honour by the publication's managing editor Richard Stengel on the 'Today Show' on Wednesday, who described Obama as the embodiment of a "New America."
He revealed: "[Obama is] basically the beneficiary and the author of a kind of a New America, a new demographic, a new cultural America that he is now the symbol of."
Obama was previously honoured by the magazine in 2008 after he won his first presidential election to become the first African American president, and has since become the first Democratic president in the US since Franklin Delano Roosevelt to gain at least 50 per cent of votes for two consecutive re-elections.
The magazine writes: "[Obama was chosen for] finding and forging a new majority, for turning weakness into opportunity and for seeking, amid great adversity, to create a more perfect union.
"He will take the oath on January 20 as the first Democrat in more than 75 years to get a majority of the popular vote twice. Only five other presidents have done that in all of US history."
The runners-up (in descending order) are - Malala Yousafzai, the Pakistani teenager who was shot and nearly killed by Taliban insurgents for defending women's rights, Apple CEO Tim Cook, Egyptian President Mohamed Morsi, and Fabiola Gianotti, a head researcher looking into the discovery of the Higgs boson.
Time magazine was founded in New York in 1923 with an aim to cover the news through people, which is what led to their decision in 1927 to name a Person of the Year - honouring those who have a substantial influence on the world.