Prayut, who is now prime minister, was the army chief last May when he seized power from an elected government which opponents had decried as corrupt and nepotistic.
He defended the consideration of his sibling Preecha Chan-O-Cha, currently serving as an assistant army chief, for the top job.
Thailand's defence ministry is shortly due to submit its recommended candidate for the job with Prayut's endorsement for Preecha and the other assistant army chief, Teerachai Nakvanich, the only two applicants.
"Why is it a problem that he is my younger brother?" Prayut told reporters in Bangkok on Tuesday when asked about the possibility of his sibling winning the role.
The position is pivotal in a country where the army plays a key political role — Thailand has seen long stretches of military rule with 19 successful or attempted coups.
"Why would his appointment be damaging?" Prayut said in his trademark rhetorical style.
"He's never asked me for any favours. He's worked his way up himself," added the premier, dismissing speculation of a counter coup in revolt at Preecha's appointment.
"I don't fear a counter coup. I am happy to hand over power," he said.
An announcement on the new army chief is expected before the end of September when the outgoing leader Udomdej Sitabutr is due to retire.
Last May's coup ended months of often violent protests in Bangkok against the former government of Yingluck Shinawatra and brought with it a flurry of curbs on civil liberties including a ban on political assembly and criticism of junta-rule.
Prayut has said the coup was necessary to restore order but also to excise the kingdom of corruption and cronyism — labels attached to the former governments led by or linked to the divisive Shinawatra family.
The power grab was the latest act in an on-going political saga that has gripped the country for nearly a decade since Yingluck's older brother and ex-premier Thaksin Shinawatra was toppled by a 2006 coup.
The long-running conflict broadly pits the rural and urban working-class supporters of the Shinawatras against the royalist elite bolstered by large sections of the military.
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