Russian President Vladimir Putin named a new government on Monday with leading contenders to replace him retaining their posts and trusted liberal Finance Minister Alexei Kudrin promoted to deputy prime minister.

"We have important challenges ahead of us in economic and social policy," Putin said, adding: "I am very much counting on this government to achieve in the most decisive way the goals set by us and the parliament."

The reshuffle came 12 days after Putin nominated as new Prime Minister Viktor Zubkov, a confidant and colleague from his early political career in Saint Petersburg.

Maintained in their posts were the two men widely tipped as leading contenders to replace Putin when he steps down after a presidential election next March 2, Dmitry Medvedev and Sergei Ivanov.

Both men hold the rank of first deputy prime minister, although recent opinion polls suggest that Ivanov, like Putin a former KGB spy, has an edge over Medvedev in the undeclared race.

Kudrin, well known and widely respected in Western financial circles, will simultaneously hold the posts of deputy prime minister and finance minister.

As finance minister since 2000, his new status comes as a reward for getting the economy on an even track and keeping inflation in check after the financial chaos Russia experienced in the late 1990s.

Reacting to his appointment, Kudrin said: "It means for me the confirmation of the president's words about continuity in economic policy."

Meanwhile Energy Minister Viktor Khristenko was another cabinet heavyweight to retain his brief, with broad responsibility for Russia's vast oil and gas sector.

But the reshuffle marked the long-predicted departure of another liberal figure, economy minister German Gref, who had failed to secure Putin's goal of joining the World Trade Organisation, leaving Russia the only major economy outside the group.

Gref was replaced by his long-time deputy Elvira Nabiulina, who handled macroeconomic management for several years and worked on Russia's chairmanship last year of the Group of Eight industrial countries.

Her views were described by one expert, Yevgeny Yasin, head of Russia's Higher School of Economics, as similar to Gref's, being "liberal and aimed at market reforms and increasing the effectiveness of the economy."

Igor Bunin, head of the Centre for Political Studies, said Nabiulina's appointment showed that "the liberal economic group has been strengthened" in the government.

"This is as a whole good news for the market. Nabiulina is a well-organised and understanding person, it is a good appointment," Evgeny Gavrilenkov of the Troika-Dialog group said.

Putin also refused to accept a resignation request by Defence Minister Anatoly Serdyukov, a recently appointed former furniture store owner who had offered to go as he is Zubkov's son-in-law.

There was no change in the foreign policy portfolio, with Sergei Lavrov remaining as foreign minister.

What form the government will take has consumed the Russian media since Putin's surprise appointment of former finance official Zubkov earlier this month.

The reshuffle comes ahead of parliamentary elections on December 2 that in turn lead to a presidential vote next March 2.

Putin has made clear recently that projecting an image of political and economic stability is among the top priorities ahead of the elections and said on Friday there would be no policy "upsets" during the transition process.

While Putin has promised both elections will give Russian voters a free choice, most observers expect a carefully managed transition to a figure favoured by the current administration.

Putin is obliged to stand down having completed two presidential terms, although he has said he will retain an unspecified influential role.

In addition to Gref, two other ministers from the previous government were not given posts in the new one: Mikhail Zurabov, blamed two years ago for mishandling reform of pensions, and Vladimir Yakovlev, former minister for regional development.

Dmitry Kozak, who has served as Putin's special envoy for the turbulent North Caucasus region that includes Chechnya, was promoted to regional development minister in Yakovlev's place.

"I would not like to heap praise, but Zubkov has always been in responsible posts and had never left one without doing what he was tasked with. One would like this responsibility and discipline to come back to our government," deputy speaker of the State Duma lower house of parliament Lyubov Sliska said.

Earlier analyst Yevgeny Volk, head of the Moscow office of Washington's Heritage Foundation, said the reshuffle would have little impact and could not hide wider failings under Putin's leadership.

"There has been a great bureaucratisation of the economy while Putin has been president, which leads to inefficiency and corruption," said Volk.

In any case, "everyone understands that the new government will likely be a temporary, transitional one that won't survive the presidential elections.... Whoever comes in is going to want people loyal to him," he said.