Lai will lead a delegation to Asuncion for the inauguration of Santiago Pena on August 15 "to show the importance Taiwan attaches to its diplomatic ties with Paraguay", said deputy foreign minister Alexander Yui.
Paraguay is the last remaining country in South America that diplomatically recognises Taiwan over China, which views the self-ruled island as part of its territory to be seized one day, by force if necessary.
Lai's trip will require him to transit through the United States, which could draw citicism from Beijing.
Recent US transits by Taiwanese President Tsai Ing-wen and Lai had angered China's government, which considers such stops as lending Taipei greater international legitimacy.
"We had arranged transits in the United States during previous visits to Central and South America and it's also being arranged this time according to precedents," Yui said.
In Washington, Secretary of State Antony Blinken warned China against taking any action over Lai's stopovers to and from Paraguay.
"There is no reason for the PRC to use this transit as a pretext for provocative action," Blinken said, calling the stops "very routine."
In April China's military staged three days of drills simulating a blockade of Taiwan after Tsai met US House Speaker Kevin McCarthy in California on her way home from a visit to two Central American allies.
The announcement of Lai's trip came after Pena wrapped up a visit to the island over the weekend, and vowed to be "on the side of" Taiwan during his five-year term.
Yui stressed that such US stopovers were nothing new.
"Taiwanese vice presidents have transited in the United States 10 times before... there is no reason for any unnecessary harassment."
Yui did not disclose Lai's planned transit locations, saying that the vice president's itinerary was still being finalised.
Lai last stopped in the United States in January 2022 on his way to the inauguration of Xiomara Castro, the president of Honduras.
At the time Honduras officially recognized Taiwan.
But in March this year it ditched Taipei and transferred official diplomatic ties to China, in a victory for Beijing.
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