Putin proposed economist Andrey Belousov as Shoigu's replacement, according to a list of the ministerial nominations published by the Federation Council, Russia's upper house of parliament.
The move comes at a key time in the conflict with Russian troops advancing in eastern Ukraine and having just launched a major new ground operation against the northeastern Kharkiv region.
Despite a string of military setbacks in the first year of the campaign -- including the failure to capture the Ukrainian capital Kyiv and retreats from the Kharkiv and southern Kherson regions -- Putin had stood by Shoigu until now.
That included when Wagner paramilitary chief Yevgeny Prigozhin launched a bloody insurrection last year calling for Shoigu's removal.
Explaining the timing of the decision, the Kremlin on Sunday said it needed the defence ministry to stay "innovative".
"The defence ministry must be absolutely open to innovation, to the introduction of all advanced ideas, to the creation of conditions for economic competitiveness," state media quoted Kremlin spokesman Dmitry Peskov as saying in a briefing on the appointments.
"The battlefield is won by whoever is more open to innovation," Peskov said.
"That is likely why the president has settled on the candidacy of Andrey Belousov," he added.
Belousov, who has no military background, has been one of Putin's most influential economic advisers over the last decade.
UK defence minister Grant Shapps said the Ukraine conflict had left more than 355,000 Russian soldier casualties under Shoigu's watch as well as "mass civilian suffering".
"Russia needs a Defence Minister who would undo that disastrous legacy" and end the conflict, "but all they'll get is another of Putin's puppets," he wrote on X, formerly Twitter.
- Siberian retreats -
Shoigu, 68, was appointed Russian defence minister in 2012 and has had a decades-long political career of unmatched longevity in post-Soviet Russia.
His presence at the centre of power in Moscow predates that of Putin himself.
Prior to Russia launching its full-scale military campaign on Ukraine in February 2022, he was seen as one of Putin's most trusted lieutenants.
The pair were regularly photographed on macho nature retreats in the Siberian wilderness, hunting and fishing together.
In one famous snap from 2017 shared by the Kremlin, they are sitting bare-chested under the sun on a beach by a lake.
On Sunday, Putin simultaneously issued decrees naming Shoigu as the new secretary of the Security Council, replacing his longstanding ally Nikolai Patrushev.
The Kremlin also said Valery Gerasimov, the Chief of the General Staff, would stay in post overseeing daily military operations in Ukraine.
Along with Shoigu, Gerasimov had been targeted by a hardcore group of influential pro-offensive military bloggers for Moscow's perceived military failures.
Prigozhin, who marched on Moscow calling for the pair's removal, died in an unexplained plane crash weeks after his aborted mutiny.
- Key moment -
Putin is constitutionally required to name a new set of government ministers -- or reappoint existing ones -- following his victory in a March election devoid of opposition.
Lawmakers in Russia's rubber-stamp parliament need to approve the president's nominations, which they are set to do over the coming days.
The future of Patrushev, an arch-hawk who is sometimes seen as a possible successor to Putin, was unclear.
There was no immediate high-level reaction to the shake-up in Ukraine.
The changes come at a crucial time in the conflict, which had been showing signs of a stalemate for months.
Putin casts the fight against Ukraine as a near-existential battle for his country, calling it just one front of a "hybrid war" between Russia and the West.
bur/imm/jj
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