Russian President Vladimir Putin has dismissed his close ally and powerful chief of staff Sergei Ivanov, according to a Kremlin statement.

The move represents the highest-level demotion inside the Kremlin in several years.

"Russian President Vladimir Putin has decreed to relieve Ivanov of his duties as head of the Russian presidential administration," Friday's statement said.

It said Ivanov, 63, who is also a former defence ministery, would now serve as a special representative for conservation, environmental and transportation issues.

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Ivanov, who served together with Putin in the Soviet-era KGB spy agency, was appointed Kremlin chief of staff in late 2011, just months before Putin's 2012 re-election.

Ivanov will be replaced by Anton Vaino, a 44-year-old former diplomat who had served as Ivanov's deputy since 2012, according to a decree signed by Putin on Friday.

"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 in a meeting with Ivanov and Vaino broadcast on state television.

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

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

However, Putin handed over the top job to Dmitry Medvedev, the current prime minister, before reclaiming it in 2012.

Source: Agencies