The Kremlin on Tuesday faced warnings of trouble for the Russian economy after President Dmitry Medvedev ousted his finance minister in the most bitter public clash within the elite for years.
Finance Minister Alexei Kudrin, who had been in his job since 2000 and won global plaudits for his work, resigned after objecting to the plan that would make Medvedev prime minister when Vladimir Putin returns to the Kremlin.
Kudrin is the first casualty of Russia's new political strategy and his dissent exposed unexpected cracks over the scheme for 2012 elections within a ruling establishment that usually never airs its disputes in public.
His exit could also disturb Western investors who have long been reassured by Kurdrin's adamantine resistance to the extravagant spending demands by Russian ministers and his canny saving of the proceeds from Russia's oil exports.
"Alexei Leonidovich -- if you do not agree with the policy of the president, then you have one option and you know what it is -- to resign," an incandescent Medvedev told Kudrin at a meeting broadcast on state television.
Barely flinching, Kudrin told Medvedev: "I do indeed have differences with you." In a final act of defiance, he refused to resign on the spot but hours later the Kremlin confirmed that Medvedev had signed the resignation decree.
Although clearly approved by Putin, the drama means Russia's ruling tandem is losing the country's most respected economist at a time when a new global financial crisis is raising fears over Russia's dependence on oil exports.
"This local event is a strong negative signal for Russia's investment case," Russia's leading private bank Alfa Bank wrote in a note to clients.
"We believe that his abrupt resignation creates a risk of substantial deterioration in Russian budget discipline, which is particularly dangerous in the event of a crisis."
Kudrin is credited with clearing up the massive external debt that Putin inherited from the 1990s, shielding Russia from the worst effects of the 2008 global financial crisis and convincing Western firms it was safe to invest in Russia.
"Kudrin's resignation will be a big blow for the Russian economy -- experts are already forecasting a new wave of capital flight, a fall in the ruble rate and inflation growth," said the daily Vedomosti.
"It is hard to imagine who else possesses such an array of qualities -- an understanding of the economic processes, loyalty to his principles and relations of confidence with Putin."
Even mass-circulation daily Komsomolskaya Pravda, a loyal Kremlin follower, acknowledged the magnitude of the move. "The president made his 'irreplaceable' finance minister resign," it said.
A successor has yet to be named. Vedomosti said a possible contender is Health Minister Tatyana Golikova although there are also candidates from within the finance ministry while reformist ex-economy minister German Gref is another option.
Kudrin outraged Medvedev by saying at the weekend that would not serve under him as head of government due to fundamental disagreements on economic policy, in particular a ramping up of military spending.
But sources quoted in the Russian press said that Kudrin was also furious that Putin had not opted to choose him for prime minister after allegedly making such a promise earlier this year.
Putin, Russia's president from 2000-2008, is almost certain to win the March elections and could in theory serve two more terms to 2024, by which time he would be 72 and the longest serving Moscow leader since Joseph Stalin.
However economists predicted Kurdin's departure would not have a short-term effect on the Russian markets, which closely follow US trends, and both of Moscow's main bourses were up two percent in morning trade.