It has been confirmed that former foreign secretary Jeremy Hunt has taken over from Kwasi Kwarteng as Chancellor.
A more centrist figure - who also backed Rishi Sunak in the leadership race - Hunt is less likely to share Kwarteng and Liz Truss’ ideological free market commitment to tax cuts.
Edward Argar replaces Chris Philp as Chief Secretary to the Treasury, while Philp moves into Argar’s previous role as Paymaster General and Minister for the Cabinet Office.
Kwarteng paid the price for the chaos unleashed by his mini-budget as he was sacked by the Prime Minister.
He left Downing Street after accepting Truss’ request he stand down as Chancellor.
Truss said she was “sorry” to lose him as Chancellor, adding that: “You have put the national interest first.”
Kwarteng flew back early from International Monetary Fund talks in Washington on Friday to be informed of his fate in a brief meeting with the Prime Minister.
In his letter to Truss, he wrote: “You have asked me to stand aside as your Chancellor. I have accepted.
“When you asked me to serve as your Chancellor, I did so in full knowledge that the situation we faced was incredibly difficult, with rising global interest rates and energy prices. However, your vision of optimism, growth and change was right.
“As I have said many times in the past weeks, following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation — that must still change if this country is to succeed.
“The economic environment has changed rapidly since we set out the Growth Plan on 23 September. In response, together with the Bank of England and excellent officials at the Treasury we have responded to those events, and I commend my officials for their dedication.
“It is important now as we move forward to emphasise your government’s commitment to fiscal discipline. The Medium-Term Fiscal Plan is crucial to this end, and I look forward to supporting you and my successor to achieve that from the backbenches.
“We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one. It has been an honour to serve as your first Chancellor.”
His departure may give Truss some brief breathing space as she seeks to shore up her battered authority after weeks of turmoil following his “fiscal event” last month.
But it will also raise fresh questions about her chances of survival – because she was closely linked to the policies that caused the problems.
The commitments to reverse a hike in national insurance rates and ditch a planned rise in corporation tax, without explaining how they would be paid for, were the key planks of her leadership election campaign.
But after the financial markets took fright - with the pound plummeting against the dollar and the cost of government borrowing soaring - the Conservatives have seen their opinion poll ratings tank.
SNP Westminster deputy leader Kirsten Oswald said: "No attempt to pass the buck can disguise the fact that Liz Truss is up to her neck in this.
"It was her reckless incompetence that trashed the UK economy - and she is to blame for the damage to people's mortgage rates, pensions and household budgets.
"With her Chancellor gone, it's unclear what justification there is for Liz Truss remaining in post.
"For Scotland, this Tory-made economic crisis has demonstrated why we need independence to escape the chaos of Westminster control and get rid of Tory governments for good."
Scottish Green Party co-leader Lorna Slater commented: "Kwasi Kwarteng’s tenure has been short, destructive and disastrous.
"But he didn’t do it alone - he was cheered to the rafters by his Tory colleagues, including the Scottish Tories who called for the Scottish Government to replicate his terrible decisions.
"Scotland can do so much better, we don’t need to be ruled by cruel and incompetent Tory governments that we didn’t vote for and can’t remove - with the powers of independence we can build a fairer and better economy that works for people and the planet."
The pound dropped back after the Chancellor confirmed his departure.
Sterling started the day in positive territory as traders welcomed speculation that the government could step back from plans to reverse an increase in corporation tax next year.
However, it has now fallen by 1.06% to 1.12 against the US dollar as the departure of Kwarteng presented the markets with more potential uncertainty.
Meanwhile, yields on UK Government bonds known as gilts have stabilised at around 4.3%.
The cost of government borrowing fell further earlier this morning, with gilt yields dropping as speculation swirled that there would be a change at the Treasury; an indication that investors in the UK might welcome this change to the front seat line up.
But since his departure was made clear, 10-year gilt yields have edged up slightly and the pound fell below $1.12, with no fresh euphoria in sight as markets digest another bout of political upheaval.
"For now the Prime Minister has won breathing space, but the financial markets are highly sensitive and anything less than a co-operative approach with the Bank of England, the Office of Budget Responsibility and international institutions could cause fresh instability," commented Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
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