The current term of the current Parades Commission members is due to end on at the end of December and Ms Villiers is seeking a new five member panel.
The watchdog rules on any parade deemed contentious by the PSNI.
Launching the appointment process, the Secretary of State said: "The Haass talks provide a welcome opportunity to see if a devolved solution can be agreed for the adjudication of contentious parades.
"I am very supportive of that work and I hope that progress can be made. In the meantime, the Parades Commission will continue to be the body responsible for these matters."
The new members will be appointed for a three-year term from 1 January next year, but Ms Villiers said their tenure of office could finish early if the Haass group achieves a consensus on a new devolved system of decision-making on parades.
"I regard the task carried out by Peter Osborne and the Commission as one of the most important and challenging in Northern Ireland," Ms Villiers added.
"He and the rest of the Commissioners have fulfilled their role with fortitude and commitment over the past three years. I would like to place on record my gratitude for their public service under difficult circumstances."
The Secretary of State is writing to the leaders of all the political parties in the region asking them to encourage suitable candidates from across the community to apply.
The current body does not have the confidence of the unionist community or indeed many others who see it as unfair and irrational.
Nigel Dodds, DUP
DUP deputy leader Nigel Dodds said the appointments will be "an opportunity for change".
"It consistently rewards bad, even violent, behaviour and punishes good behaviour. It is inconsistent and aloof," the North Belfast MP added.
"The NIO should remember that the Parades Commission as an institution and the legal framework underpinning it are the fundamental issues.
"This move in itself will not produce a long-term solution. A root and branch change is needed and we will continue to work towards that. However, this change of personnel as a first step is welcome."
The UUP and PUP have also welcomed the announcement.
Reflecting on the work of the watchdog, Sinn Féin MLA Gerry Kelly said the Parades Commission have "succeeded in focusing the minds of the Loyal Orders on the need for dialogue".
Over the course of the past two years the Parades Commission has pursued a resolution strategy with respect to contentious parades.
Gerry Kelly, SF
"While the announcement that the Parades Commission will continue for a further period is to be welcomed, the decision to reduce its composition, particularly in advance of the consideration of the parades issue at the Haass talks, is somewhat pre-emptive," he added.
"The capacity of the Parades Commission to build upon the progress they have made in recent times should be strengthened rather than diminished."
SDLP Policing spokesperson Dolores Kelly expressed concern that the Secretary of State decided not to reappoint the current members of the Parades Commission.
"It will be viewed as a vote of no confidence in the Commission by the London government, following a summer of determinations that were informed by proper considerations," she said.
Ms Kelly continued: "In addition, by design or default, this decision undermines the institution of the Commission, which has very significant implications for the Haass Talks.
"It is the SDLP's view that the wiser approach is to do what has been as has been routinely done before and re-appoint members of the Commission."
Peter Osborne, Chair of the Parades Commission, said: "The Secretary of State has confirmed that the term of the current Commission will end on 31 December and that new Commissioners are to be appointed.
"The work of this Commission, however, continues as normal between now and the end of December."
The new appointments will be made following an open competition regulated by the Office of the Commissioner for Public Appointments.