Suella Braverman has been sacked as home secretary, after she defied No 10 over an article accusing the Metropolitan Police of bias in the policing of protests.
Mrs Braverman was accused of stoking tension ahead of protests in London.
James Cleverly has been announced as her replacement, with former prime minster David Cameron unexpectedly replacing him as foreign secretary.
She said serving as home secretary was "the greatest privilege of my life".
Mrs Braverman's sacking kickstarts a major cabinet reshuffle by Rishi Sunak as he reshapes his top team ahead of next week's Autumn Statement.
The prime minster's official spokesman said: "This reshuffle will give the prime minister a united team to deliver the change this country needs for the long term."
Mr Cameron, who has been out of Parliament since he stood down as prime minister in 2016, has been given a seat in the House of Lords to enable him to take up his new position.
The Liberal Democrats are calling for Mr Cameron's peerage to be blocked, referring to his lobbying for collapsed finance company Greensill Capital.
Labour's National Campaign Coordinator Pat McFadden said Mr Cameron's appointment "puts to bed the prime minister's laughable claim to offer change from 13 years of Tory failure".
"A few weeks ago Rishi Sunak said David Cameron was part of a failed status quo, now he's bringing him back as his life raft," Mr McFadden added.
Mr Cleverley said it has been a "huge privilege" to serve as foreign secretary, and that being home secretary was a "fantastic job".
'Highly irresponsible'
Since her elevation to home secretary by former PM Liz Truss, Mrs Braverman has been seen as a standard bearer for the right in the Conservative party.
In a statement, Mrs Braverman said: "I will have more to say in due course", leading to speculation she may cause trouble for the leadership.
She lost her job following days of a political firestorm sparked when she wrote an article for the Times newspaper, accusing the police applying a "double standard" and took a tougher stance with right-wing demonstrations.
The article was not cleared by No10 and it later emerged Mrs Braverman had defied a Downing Street request to tone the article down.
Labour, the Liberal Democrats and some Tory MPs had called for Suella Braverman to be sacked.
Shadow home secretary Yvette Cooper, said Mrs Braverman actions were "highly irresponsible" and inflamed tensions, making the job of the police harder.
As Mr Sunak's reshuffle continues, two junior ministers have announced they are standing down from government.
Long-serving Schools Minister Nick Gibb announced he was resigning and would step down as an MP at the next election, while Neil O'Brien said he had left his role as health minister.
