The 40-year-old has been promoted from his role as First Team Coach following the departure of Jimmy Dean, Chris Plummer and Ant Coombe.
The former Iron player will look to win promotion from the National League North after finishing runners up last time out.
Butler has previously served as manager of Doncaster Rovers Belles, as well as interim manager of League Two Rovers.
Following defeat to Boston United in last weekend’s play-off semi-final, the club made a change. After parting ways with Dean, they said say they are looking “towards sustainability, and bringing expenditure in line with the level what the football club can afford”.
Butler is happy to be a part of the plan and said: “It’s fantastic news for me, and I’m buzzing that Michelle and the Board have offered me this position.
“It’s been a quick turnaround, and I want to wish Jimmy, Chris and Ant all the best in their future cheers because they’ve worked ever so hard this season.
“Onwards to the future, we look and bring in the people we think we can get promotion with, and to finish the job off that we’ve started.
“I’m going to grasp this with both hands, and I’m going to relish this challenge, because it will be a challenge.”