The 41-year-old will take charge immediately and will oversee the club's home game against Boston United tomorrow.
He's spent the majority of his coaching career at the Baggies, working in the club's academy before taking a role in the first team under Darren Moore in 2018 and then as interim manager when Moore left the club.
Shan guided the side to the semi-finals of the Championship play-offs where they lost on penalties to Aston Villa.
Russ Penn, who has been in caretaker charge of Harriers for the last two games, will assist Shan in his new role.
“I know plenty about Kidderminster given my work in the area – it is clearly a progressive club that wants to move into the future in the right way," he said.
“I am looking forward to working with Russ, the players and the club.
"It is a big challenge, however as a group, with the re-engagement and support of the Kidderminster fans, I’m confident we can be successful.”
Shan has been appointed on an initial deal until the end of the season and owner Richard Lane is excited about a 'bright future' under the new boss.
“This is a new era for the football club," he said.
“This is the time to focus on building a bright future for the club and moving forward, collectively, with the supporters and the town behind us.
"The atmosphere against Gateshead at Aggborough on Tuesday was fantastic, and we’re keen to really carry that forward now as we build for success on the pitch.
“Jimmy is local and hungry to get to work quickly and to be successful here. He was the standout candidate for us, and we’re looking forward to getting started.
“We are committed to supporting Jimmy in strengthening his squad with signings, this isn’t an overnight process, we will give him the tools he needs to help boost the team.”