Former midfielder Iliev, 44, quit after Sunday's goalless home draw against bottom club Montana with Levski fans calling for his departure following a series of inept performances.
"I had a long conversation with Ilian Iliev and we decided that he'll continue his work," Levski's chief executive Ivo Tonev said.
Iliev, who led Beroe Stara Zagora to the Bulgarian Cup in 2010, won three league titles and two national cups as a Levski player in the early 1990s.
Tonev said that former Bulgaria international Daniel Borimirov, part of the team that reached the 1994 World Cup semi-finals in the United States, will return to Levski as sporting director - less than four years after leaving the post.
Levski, who have failed to win a trophy since 2009, are second in the standings with 41 points from 18 games, two behind champions Ludogorets.
- Sports & Recreation
- Ilian Iliev