Muslim ban 'architect' appointed to Trump's security panel
Bannon is the chief strategist at the White House and senior counsellor, but the new position gives him more far-reaching powers.
He is viewed as President Donald Trump's right-hand man and has been linked to some of the new administration's most right-wing and controversial policies.
Bannon is also the former publisher of far-right "alternative news" site Breitbart.
Given a seat on the National Security Council, Bannon has access to some of the country's most sensitive information and puts him in one of the most powerful positions in government.
Trump's reshuffle of the body sees Bannon given precedence over two military chiefs of staff who were viewed as allies of former President Barack Obama.
They now see their access to information on the National Security Council seriously downgraded, worrying security experts.
The joint chiefs of staff and the director of national intelligence will only attend meetings that fit with "responsibilities and expertise", the Guardian reported.
This pushes two of the most senior military chiefs out of important intelligence briefings and privy only to information that the president deems necessary.
Trump's chief-of-staff Reince Priebus has also been given a seat on the council.
"The security threats facing the United States in the 21st century transcend international boundaries," Trump's executive order said.
"Accordingly, the United States Government's decision-making structures and processes to address these challenges must remain equally adaptive and transformative."Bannon is viewed as one of the most far-right Trump advisers and a vocal proponent of anti-Muslim legislation - including a ban on entry to the US of passport holders from seven Muslim-majority countries.
His former media outlet Brietbart has been criticised for carrying Islamophobic, racist and xenophobic stories with questionable veracity, which helped propel Trump to office.
Bannon this week courted further controversy when he attacked the US media as the real "opposition party" and said journalists should "keep their mouths shut".
Meanwhile, the Trump administration also said they would publish weekly reports on crimes committed by illegal immigrants, a practice compared to the Nazis' policy of naming alleged Jewish "criminals" in Germany.
Many Americans fear that Bannon's place in government puts freedoms and civil liberties at very real risk, and reverse the democratic rights and free speech US citizens enjoy.