Russian President Vladimir Putin on Tuesday fired defence minister Anatoly Serdyukov over a corruption scandal, the most dramatic change to the government since he returned to the Kremlin for a third term.

Putin replaced Serdyukov, who had been implementing an unpopular but Kremlin-backed military reform, with Moscow region governor and long-standing ally Sergei Shoigu.

Serdyukov was relieved of his duties so that a thorough investigation can proceed into a suspected $100 million property scam at a defence ministry holding company, Putin said at a meeting with Shoigu.

"Taking into consideration the situation around the defence ministry I have made a decision to relieve defence minister Serdyukov of his post in order to create conditions for an objective investigation of all the issues," Putin said in televised remarks.

The defence minister's sacking comes at a time as the Kremlin is planning to dramatically ramp up military spending that experts say will come at the expense of financing education and medical care.
The new minister should be "a person who will be able to continue... the dynamic development of the armed forces, to fulfil the implementation of state defence procurement and those grandiose plans to rearm the army and the fleet that have been put forward," Putin said.
"You can be that person," Putin told Shoigu.

In the past Putin had repeatedly resisted calls from within the military for Serdyukov to leave his post over the military reform drive. Serdyukov is the son-in-law of Viktor Zubkov, a former Russian deputy prime minister and a long-time Putin ally.

The sacking also comes at a sensitive time, with relations with Washington tense as the United States elects a new president and Putin facing an unprecedented challenge at home from popular demonstrations.

Some observers had been expecting Putin to fire his protege and Kremlin predeccesor Dmitry Medvedev at a time of rising discontent with the government.

Russian investigators had on October 25 searched the offices of a defence ministry holding company, in a highly unusual move after opening a criminal probe into a suspected $100 million property scam.
Serdyukov, one of the country's three people with access to nuclear launch codes, at the time was summoned for a meeting with Putin which raised immediate questions about his future.

Compounding the embarrassment for Serdyukov was that when investigators arrived at the home of one of the suspects last month they found none other than the defence chief himself, the pro-Kremlin lifenews.ru website reported.

The woman, the former head of the defence ministry's property department Yevgenia Vasilyeva, was living in a luxurious apartment and had a collection of hundreds of jewels which security forces confiscated. What Serdyukov was doing there has not been explained.

The existence of the jewellery has been confirmed by officials but they have kept quiet about the reported presence of the ex-minister at her apartment.

A former furniture salesman who rose to head the Russian tax authority, Serdyukov became the first civilian to serve as post-Soviet Russia's defence minister when he was appointed in 2007.

His lack of military credentials and controversial military reform programme made powerful enemies within the defence ministry as he tried to push through the army overhaul.

Shoigu is seen as one of Putin's closest friends and allies, serving as emergency situations minister from 1994-2012. He was only appointed to the key job of Moscow region governor this year.