The Dragons board met on Tuesday and unanimously decided the premiership-winning ex-Cronulla boss would become Anthony Griffin's permanent successor from 2024.
The Dragons confirmed to AAP they had offered the job to Flanagan, who spoke publicly earlier this month about his desire to take on the Dragons' coaching role.
The parties will now begin working on the length of his contract, salary and other specifics. There is no timeline on officially announcing the deal.
Top-rated assistant coach Jason Ryles was initially the front-runner to become the Dragons' next full-time boss after a six-game losing streak cost Griffin his job last month.
When Ryles knocked the Dragons back to rejoin Melbourne as an assistant, Flanagan rocketed into favouritism ahead of former Dragons players and current NRL assistants Dean Young and Ben Hornby.
Flanagan was the only candidate on that shortlist with head-coaching experience, having finished his 185-game tenure at the Sharks with a 55 per cent winning record and the 2016 premiership.
Part of the Dragons' attraction to Ryles was the ability to begin work on the club's roster immediately as the Sydney Roosters were keen to release him from his assistant coaching job to join the Saints mid-year.
Such work cannot come soon enough for the Dragons, who have struggled to attract top-quality talent in recent seasons.
They are ranked last on the ladder through 15 rounds and are facing the strong possibility of missing a fifth consecutive year of finals.
The Dragons will be hoping Flanagan's winning experience and previous stint on their staff can help convince current players to stay put and others to sign on despite the lack of recent success.
Even before being guaranteed the job, Flanagan had made contact with captain Ben Hunt to encourage the halfback not to follow close confidant Griffin out the door.
But the bulk of work on the roster will wait until the off-season with Flanagan set to see the season out as right-hand man to Anthony Seibold as the Sea Eagles push for finals.
With a 2-2 record since taking over from Griffin, interim coach Ryan Carr will remain in charge at the Dragons before Flanagan takes the reins.
After their defeat of South Sydney at the weekend, Dragons players spoke of their hopes Carr could remain an assistant coach next season, having been appointed to that role earlier this year.
The Dragons job will be Flanagan's first NRL head-coaching role since being deregistered by the league in late 2018 after it came to light he remained in contact with Cronulla during a year-long suspension incurred for his role in the club's supplements scandal.
As part of his punishment, Flanagan has only been permitted to apply for head-coaching roles without seeking exemption from the NRL since November 2021.
He returned to coaching as an assistant at the Dragons in 2020 and later had a list management portfolio with the club.
Seibold had backed his assistant to land the Dragons job despite Flanagan having two years to run on the Manly contract that began this year.
