Velkov, who took over in October last year, vacated the coaching post following Lokomotiv's 3-0 home defeat by Chernomorets Burgas on Saturday, saying the four-times Bulgarian champions needed change.
Under the 44-year-old former Lokomotiv defender, The Railwaymen have made a poor start this season and are 12th in the standings, just above the relegation zone, with 11 points from 13 matches.
Former battling midfielder Velev, 50, guided Levski Sofia to the league title in 2009 but was fired by Slavia Sofia in 2011 and Lokomotiv Plovdiv in October following unsuccessful spells.
Velev, who signed a one-and-a-half-year deal, will take charge for Friday's visit of amateur team Master in the Bulgarian Cup.
