President Vladimir Putin on Tuesday dismissed Prime Minister Mikhail Kasyanov and his Cabinet, saying in a statement on national television he made the move in order to reshuffle the Cabinet ahead of the March 14 presidential elections.
Speculation had percolated for months that Kasyanov, the last major government holdover from Boris Yeltsin's years as president, was on his way out.
The dismissal of the prime minister also means the dismissal of the rest of the government ministers, although any of them potentially could be reappointed.
Deputy Prime Minister Viktor Khristenko was named acting prime minister.
The announcement sent shares tumbling on the Russian stock market, with dips of 3 to 5 percent within minutes of Putin's statement, the Interfax news agency reported.
Kasyanov served in the Soviet-era state planning agency Gosplan during the 1980s and after the Soviet collapse in 1991 began a steady rise through economic and financial posts.
As deputy finance minister in 1996 he worked out a deal for repaying debts that Russia inherited from the Soviet Union and two years later was a key figure in Russia's efforts to retain stability and credibility after Russia defaulted on foreign debt payments and the ruble's value plunged.
He became finance minister under Yeltsin in 1999 and one of his main achievements in that post was persuading the Paris Club of creditors to reschedule some US $8 billion in Soviet-era loans.
After Prime Minister Vladimir Putin became acting president upon Yeltsin's resignation on Dec. 31, 1999, he appointed Kasyanov first deputy prime minister, effectively making him Russia's No. 2 official.
After Putin was elected president in the spring of 2000, he appointed Kasyanov prime minister.