By Darya Korsunskaya
MOSCOW (Reuters) - Russian Prime Minister Vladimir Putin put a trusted ally in charge of the economy on Tuesday and named a low-key finance minister to address concerns about reforms and restore unity over his plan to return to the Kremlin.
Putin sacrificed his long-serving finance minister, Alexei Kudrin, on Monday after President Dmitry Medvedev demanded his dismissal for rebelling against a plan for Medvedev and Putin to swap places next March.
Kudrin's abrupt departure alarmed investors who saw him as a guarantor of financial stability and a potential leader of reforms. It also highlighted rifts around Putin as he tries to tighten his grip on power by returning to the post he held for eight years until 2008.
Putin acted swiftly to restore confidence by handing control of all economic ministries to Igor Shuvalov, 44, a former sherpa to the Group of Eight industrialized nations who has been a first deputy prime minister since 2008.
He promoted Anton Siluanov, a little-known Kudrin deputy, to the interim role of acting finance minister. An expert in regional budgets, the 48-year-old career bureaucrat is expected to keep a low profile following Kudrin's stormy departure.
Underlining that he had agreed Siluanov's appointment with the president, Putin said: "He is a good specialist, and his candidacy was obviously agreed with Dmitry Anatolyevich Medvedev. This is our joint decision."
But Kudrin, 50, did little to dampen talk of disharmony by releasing remarks on Tuesday saying he had quit because of the fiscal risks the government was taking, making clear there had been disagreements with Putin as well as Medvedev for months.
"Over the course of several months, despite my repeated objections, some made in public, decisions were taken in the sphere of budget policy that without doubt increased fiscal execution risks," Kudrin wrote in a resignation statement.
It was the first time he had so openly criticized his long-time ally, with whom he worked in the St Petersburg city authorities in the 1990s.
No one else has joined Kudrin in openly rebelling against any parts of Putin's succession plan, but the chairman of Russia's central bank, Sergei Ignatyev, did praise Kudrin as a "very strong" finance minister.
Ignatyev reassured Russian banks and markets battered by global turmoil and unsettled by Kudrin's departure that the Bank of Russia would provide as much liquidity as needed to keep the financial system afloat.
FIRST RESIGNATION REJECTED
Kudrin said Putin had rejected an initial request to quit in February. But Putin's announcement on Saturday that he planned to swap jobs with Medvedev after parliamentary and presidential elections appears to have been the last straw.
Kudrin said he would not serve in a Medvedev government and objected particularly to his plans to raise military spending.
Medvedev humiliated Kudrin by demanding his resignation on Monday at a public meeting they were attending, and made clear on Tuesday he would not put up with any dissent from others.
Defending his military spending plans during talks with army officers, he slammed a table with his hand and said: "Whoever disagrees with this can go and work elsewhere."
Medvedev, 46, appears intent on asserting himself after he too was humiliated -- when he agreed not to see a second term under the terms of Putin's succession plan.
Medvedev and Putin have ruled the world's biggest energy producer in a power 'tandem' since Putin gave up the presidency after serving the maximum two consecutive terms since 2000.
But Russia now has a president who is little more than a lame duck as parliamentary and presidential elections loom over the next six months. Few doubt Putin will be elected president in March.
Economists fear a policy drift until after the presidential election and say Kudrin's removal reduces the prospect of major
economic reforms next year, even though his main legacy was to build up a rainy-day fund to cushion Russia during crises.
Some economic analysts believe the government could also loosen its control on spending as the elections approach.
"Even if Kudrin had to compromise on higher spending at times, his strong preference was for the continuing accumulation of oil wealth in state savings," said Natalya Orlova, chief economist at Alfa Bank in Moscow.
EFFORTS TO END INSTABILITY
Putin, 58, had sought to end political instability that was unsettling investors by announcing his plan on Saturday.
Under the plan, Medvedev would run as the main candidate for the ruling United Russia party in the December 4 parliamentary election, boosting its chances of maintaining a two-thirds majority in the lower house.
Shuvalov is a steady hand and fluent English speaker who has long worked with Putin.
Siluanov's first task will be s to present the government's three-year budget to parliament. Despite Kudrin's restraining influence, it foresees annual spending increases of more than 20 percent and could yet be amended to attract votes.
That in turn could further increase the vulnerability of the public finances to a decline in oil prices, as the budget next year would only balance with crude oil at $116 per barrel, about 10 percent above today's price.
Energy revenues make up half of Russia's budget.
Putin wants now to prevent further changes that could fuel instability at a time when Russia's economy is suffering because of global market turmoil. Stocks and the rouble rebounded on Tuesday but have sunk in recent weeks.
Mikhail Prokhorov, a rich businessman who quit as head of a small party this month after a feud with the Kremlin, said Putin also faced battles over policy and a realignment of political and business forces behind the scenes.
"It's clear that the reason for Mr. Kudrin's resignation was not a personal conflict with the president but a conflict of conceits, ideas about the country's future," he wrote in a blog.
"I think we are on the verge of very important, perhaps tectonic, shifts in the consciousness of the elites, including the power elites."
(Additional reporting by Douglas Busvine; Writing by Timothy Heritage; Editing by Alastair Macdonald)