It is first time the Grand Mufti has been chosen in a vote as opposed to being appointed by the president.
President Mohamed Morsi is expected to approve the decision, after which Allam will officially take up the role.
He is set to replace the outgoing mufti, Ali Gomaa, who will retire in March at the age of 61. His tenure was extended by one year in 2012 by the former ruling military council.
Earlier this month, the president turned down a request by Al-Azhar to extend Gomaa's tenure further.
Three finalists were chosen on Monday in a closed session held by senior members of the Al-Azhar Senior Scholars Authority. There was then a vote by members of the authority.
The authority was headed by Al-Azhar Grand Imam Ahmed El-Tayeb, in addition to Gomaa and Qatar-based Islamic scholar Youssef El-Qaradawi.
Following the decision, Allam stated: "It is an honour to have been chosen by the Al-Azhar Senior Scholars Authority. I hope to fulfil people's trust in me and I hope to God that I am fit for the position."
He said he would remain in his current position as head of Islamic Jurisprudence and Sharia Law at Al-Azhar University, Tanta Branch, until President Morsi officially approves his appointment.
Allam, 55, was born in the Nile Delta governorate of Beheira. He received his PhD in 1996 from the Al-Azhar University Faculty of Sharia and Law. His most famous book concerns the predetermination of the sex of a fetus and its legality and legitimacy according to Islamic law.
He has also written a book on the political rights of Muslim women.
The bylaws of Al-Azhar say the new Grand Mufti must be under the age of 60.
The candidate should also have worked continuously inside the religious establishment following the completion of his studies, and be a scholar of Jurisprudence and Sharia law. He must also be fluent in a second language other than Arabic.
Al-Azhar is the main source of religious edicts for Sunni Muslims worldwide and the post of Grand Mufti has been in existence since 1895. Allam is the 19th holder of the post.
The list of nominees for the post sparked controversy when it appeared that a member of the Muslim Brotherhood Guidance Bureau, Abdel Rahman El-Bar, had intended to nominate himself for the role. It later seemed he had not.
Allam does not appear to have any political affiliations.