BEIJING—In a sign of how the Bo Xilai affair has shaped the thinking of China's rulers, the incoming Communist Party leadership appointed a new domestic security chief but downgraded the position.

The move could strengthen the rule of law after a decade in which the security forces amassed vast new powers and resources, and party insiders say it is a direct consequence of the scandal surrounding Mr. Bo, the former party highflier whose wife was convicted in August of murdering a British businessman.

Mr....