Russian President Vladimir Putin on Friday unexpectedly dismissed his close ally and powerful chief of staff Sergei Ivanov, in the highest-level change inside the Kremlin in several years.

The Kremlin said in a statement that Putin had "decreed to relieve Ivanov of his duties" and handed him a job as a special representative for conservation, environmental and transportation issues.

Ivanov – who served together with Putin in the Soviet-era KGB spy agency – was replaced by his deputy Anton Vaino.

Russian state-media quickly aired footage of Putin thanking a smiling Ivanov for his work and presenting the move as a mutual decision.

"I remember well our agreement about the fact you had asked not to be in this area of work as the head of the presidential administration for more than four years," Putin said.

"This is why I am sympathetic to your desire to move on to another field."

Ivanov, a reputed hawk who served as defence minister from 2001 to 2007, was appointed Kremlin chief of staff in late 2011, months ahead of Putin´s 2012 re-election.

Ivanov pledged to work "actively, dynamically and effectively" in his new position. He will remain a member of Russia's powerful security council.

His replacement Vaino, a 44-year-old ex-diplomat, has served as his deputy since 2012.

Many observers had considered Ivanov a leading candidate to take over from Putin as president when his second term ended in 2008.

But the Kremlin strongman handed over the top job to current Prime Minister Dmitry Medvedev before reclaiming it in 2012.

Ivanov's dismissal comes as Russia gears for parliamentary elections next month against a backdrop of economic crisis caused by Western sanctions over the crisis in Ukraine and falling oil prices.

Putin recently reshuffled a string of top regional officials in a move experts say is aimed at helping the Kremlin shore up the vote across the country.

Russia is set to hold its next presidential election in 2018. Putin is widely expected to run again for a new term