By Angus McDowall
RIYADH (Reuters) - Saudi Arabia's King Abdullah has removed veteran deputy defense minister Prince Khaled bin Sultan from his post, state media reported on Saturday, the latest move in a reshuffle among princes holding government jobs in the U.S.-allied kingdom.
Switches of important posts between princes are closely watched because they indicate possible changes in the line of succession in the monarchy, the dominant power among Gulf Arab states and the world's biggest oil exporter.
Prince Khaled was head of the Saudi armed forces during the 1991 Gulf War but was passed over for the job of Defense Minister in 2011 after the death of his father, Crown Prince Sultan, who had held the position for five decades.
He has been replaced as deputy defense minister by Prince Fahd bin Abdullah bin Mohammed bin Abdulrahman, Saudi Press Agency (SPA) reported, citing a royal decree. Prince Fahd is a former head of the Saudi navy.
SPA did not give a reason for the switch.
The Defense Minister is Crown Prince Salman, King Abdullah's named successor. He oversees multi-billion-dollar arms purchases that cement Saudi Arabia's alliances with Western nations.
Unlike in European monarchies, the Saudi ruling family succession does not move from father to eldest son but along a line of brothers born to the kingdom's founder, and is based on seniority, experience, temperament and position in the family.
It is not clear who will rule after King Abdullah and Crown Prince Salman, but the succession hopes of Prince Muqrin, the youngest of the brothers, were boosted when he was appointed second deputy prime minister earlier this year.
In the past year, grandsons have been appointed to senior positions, including Prince Mohammed bin Nayef as Interior Minister, Prince Saud bin Nayef as Eastern Province Governor and Prince Khaled bin Bandar as Riyadh governor.
Speaking on Friday before a trip this month to the region by U.S. Defense Secretary Chuck Hagel, Washington defense officials said the United States was finalizing a $10 billion arms deal involving Saudi Arabia, the United Arab Emirates and Israel.
The deal involved the sale of V-22 Osprey aircraft, advanced refueling tankers and anti-air defense missiles to Israel and 25 F-16 Desert Falcon jets worth nearly $5 billion to the United Arab Emirates, the officials said.
Saudi Arabia is expected to buy unspecified long-range weapons that could be used on 84 Boeing F-15s that Saudi Arabia is buying under a separate arms deal first announced in 2010.
Hagel's first trip to Middle East since taking office in February included plans to visit Israel, Jordan, Saudi Arabia, Egypt and the UAE, and he was expected to continue discussions about the arms sale at stops along the way.
(Editing by William Maclean and Louise Ireland)