Day, 55, will head up a revamped scouting department at Elland Road and will report to technical director Gwyn Williams.
Leeds manager Simon Grayson said: "We're re-structuring the scouting department under Gwyn and Mervyn will be working on the recruitment of players, both at senior level and academy level.
"Merv's knowledge and experience will prove important to the football club as we look to progress and develop what we are doing."
Day, who made 268 appearances for Leeds between 1985 and 1992, was previously in Alan Curbishley's backroom team at Charlton and West Ham and had a short stint as a manager at Carlisle.
Source: PA
Source: PA