Intelligence sources said that Naikoo, considered a moderate, was appointed as the new chief to counter deposed Hizbul commander Zakir Musa's extremist narrative.
The move highlights the ongoing leadership crisis in the organization.
The army had killed former Hizbul commander Sabzar Bhat in an encounter on 27 May. Slain Hizbul commander Burhan Wani's father had also attended Bhat's funeral to show solidarity in hopes of triggering massive protests like those that followed Wani's killing.
Naikoo is considered tech-savvy and was a close aide of Burhan Wani. He is seen as a moderate, who had earlier invited Kashmiri Pandits back to the valley, saying they were entitled to their land in Kashmir.
His appointment seeks to counter the extremist narrative put forth by deposed commander Zakir Musa, who said the Kashmir struggle was to establish a caliphate.
Sources stated that the Hizbul leadership in Pakistan as well as their sponsors Pakistan's intelligence agency ISI, were furious at Musa's statement that Kashmir was not a political issue. Musa's proclamation of establishing a caliphate in Kashmir was counter-productive as locals would then oppose Hizbul.
Intelligence sources said his secular outlook could draw more urban youth to the Kashmir separatist struggle.
He is said to have escaped from several traps set for him by the army.
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