Milligan, 39, succeeds Joey Collins, who departed Irongate last week.
He is a familiar face having spent a number of seasons with the club as player and coach, including being part of the promotion winning side of 2017/18.
The former Fleetwood man also scored in the 2017 League Cup final win over Grantham Town.
Joining Milligan in the dugout will be former Blackpool defender John Hills.
Their first game in charge will be at Whitby Town in the BetVictor Northern Premier on Saturday.
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