The list of new peers contains 18 men and 20 women.
A series of Labour MPs who lost their seats or stood down at the last election will now join the House of Lords - including Thangam Debbonaire, Julie Elliot, Lyn Brown and Steve McCabe.
Luciana Berger and Phil Wilson, two Labour MPs who lost their seat at the 2019 election are to become peers, as is Margaret Curran who lost her Glasgow East seat in 2015.
Berger left Labour in 2019 due to concerns about antisemitism under then leader Jeremy Corbyn and stood unsuccessfully as a Lib Dem candidate. She rejoined Labour in 2023 after being invited back by Sir Keir.
Mike Katz, the national chairman of Jewish Labour Movement - appointed to the Lords as Labour peer, said he would use his new position to continue to fight the "toxic racism" of antisemitism.
Katz said: "I passionately believe in this government's commitment to creating a fairer, more prosperous society, and its determination to build the homes and the infrastructure that our country needs and our people deserve."
The peers will now be entitled to a tax-free £361 daily allowance - plus travel expenses - when they attend Parliament.
Last month, Gray had decided not to take up a post as the prime minister's envoy to the nations and regions that she was offered after departing as Sir Keir's chief of staff.
Gray maintains it was her decision to leave the job, but her exit came following weeks of negative headlines and briefings against her, including a row over her salary.
Her son, Liam Conlon, was elected as Labour MP for Beckenham and Penge in July.