The 54-year-old beat incumbent Tamar Zandberg in Thursday's vote by the party's central committee.
It comes weeks after the appointment of Israel's first openly gay minister with Prime Minister Benjamin Netanyahu's choice of Amir Ohana as acting justice minister.
Israel has presented itself as a pioneer in LGBT rights in the region, but homosexuality is deeply rejected by conservative religious parties whose support Netanyahu is likely to need in order to form his next government.
It has also been accused of "pinkwashing", or pushing its reputation for tolerance, in an effort to restore a liberal image tarnished by its occupation of Palestinian territories.
Horowitz's election comes less than three months before Israel holds new parliamentary polls.
An April vote saw Prime Minister Benjamin Netanyahu and his right-wing and religious allies win a majority.
But Netanyahu failed to form a coalition government and opted instead for the new election.
Meretz has consistently struggled to maintain a presence in parliament in the past.
In April the party managed to cross the electoral threshold requiring 3.25 percent of the vote to enter the Knesset, where it holds four of the 120 seats.
"We are ready to cooperate with the other parties of the left in the next elections," Horowitz said in a speech after his win on Thursday night.
Israel has the most open attitude to homosexuality in the Middle East, with a large and influential gay community.
In 2002, parliament got its first openly gay member while this April's polls saw the election of five gay lawmakers.
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