The appointment made by Hong Kong's unpopular leader Leung Chun-ying -- chancellor of all the city's universities -- comes after months of controversy and protests over what some see as politically motivated decisions at HKU.
It also taps in to wider concerns that academic freedoms in the city are under threat, particularly in the wake of last year's student-led mass pro-democracy rallies.
Once a British colony, Hong Kong was handed back to China in 1997 under a deal that guaranteed the retention of its civil liberties and capitalist system for 50 years.
Arthur Li was appointed as chairman of HKU's governing council on Wednesday night and will start a three-year term from January 1.
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It comes after the university's council, criticised as being pro-Beijing, rejected liberal law scholar Johannes Chan as pro-vice chancellor at the university, sparking protests from staff and students.
"There is a widely held view that Li is not the right person to address this crisis and restore confidence in the university," said Timothy O'Leary, a professor at HKU and member of the governing council.
At a non-binding vote in November by HKU alumni on whether Li should be appointed, 98 per cent said he should not.
Alumni, academics and university staff said they would march through central Hong Kong on Sunday in protest.
Student leader Billy Fung said there would not be a class boycott, but other action would be taken.
"We need to take wise steps instead of quick steps... I and the student union will take appropriate actions at an appropriate time," said Fung, president of the HKU student union, on a Facebook post.
"Beijing considers Hong Kong University to be a bastion of anti-Chinese influence," said political analyst Willy Lam of the Chinese University of Hong Kong.
"He (Li) is the ideal person to rein in academic freedom and to impose Chinese values on Hong Kong University," Lam said.