Ali al-Naimi has been replaced after more than 20 years in the role by former health minister Khaled al-Falih.
Saudi Arabia – the world’s largest crude exporter – unveiled major economic reforms in April, aimed at ending the country’s dependence on oil.
In 2015, about 70% of Saudi Arabia’s revenues came from oil, but it has been hit hard by falling prices.
The Saudi government shake-up, announced in a royal decree, sees a number of ministries merged and others, such as the ministry of electricity and water, scrapped altogether.
A public body for entertainment is being created, and another for culture.
King Salman’s son Prince Mohammad directs Saudi Arabia’s economic policy, and Ali al-Naimi’s removal is an indication that he wants tighter control over the commodity.
Khaled al-Falih has spent more than 30 years working at state oil giant Aramco, most recently serving as chairman.
He will take charge of a new department managing energy, industry and mineral resources.
Years of oil profits have allowed the Saudi government to offer generous benefits and subsidies to its citizens.
However, with another huge budget deficit forecast in 2016, last month saw the approval of wide reforms including plans to create the world’s biggest sovereign wealth fund and widen the participation of women in the workforce.
Many of the changes announced by King Salman in this overhaul focus on areas where reforms have been promised.
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