Struggling with debts of 46.6 billion euros, the government of President Emmanuel Macron believes it has no option but to push through reforms that have made the labour unions unhappy.
Philippe, mayor of the port city Le Havre, is from the the moderate wing of The Republicans party and his appointment is seen as a strategic move by Macron to unite the right and the left in France.
The decision to support Francois Fillon's candidacy was taken at an emergency meeting after former prime minister Alain Juppe ruled out replacing him.
The Republicans had tipped Alain Juppe to replace their crisis-hit presidential candidate Francois Fillon, whose popularity has waned over a fake jobs scandal.
President Francois Hollande said he did not want "France to be exposed to risks which would cost it dear".
Former French prime minister Francois Fillon has now become the favourite for next year's presidential race against far-right leader Marine Le Pen.
France's Republican party has held a primary that has whittled down the number of Republican presidential candidates to two. There's also the far-right National Front's Marine Le Pen as a formidable rival. And the Socialists? Don't ask.
"I have decided to be a candidate in the 2017 presidential election," he wrote in a new book, "Tout pour la France"
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