Tory big-hitter Ken Clarke is being downgraded after causing a series of headaches for the Conservative Party leadership.
Denying that the moved from Justice Secretary to minister without portfolio was a humiliation, Mr Clarke told reporters: "Being offered a job in the Cabinet at my age - don't be daft."
Work and pensions minister Chris Grayling is replacing Ken Clarke as Secretary of State for Justice, Downing Street said.
In other changes Jeremy Hunt has been moved from Culture Secretary to be the new Health Secretary with Andrew Lansley leaving that post to become Leader of the House of Commons, Downing Street said.
David Jones has been promoted from Welsh minister to Secretary of State for Wales, Maria Miller becomes Culture, Media and Sport Secretary, in place of Jeremy Hunt, and Minister for Women and Equalities.
Justine Greening has been appointed International Development Secretary and Patrick McLoughlin replaces her as Transport Secretary.
Tory Party co-chairman Baroness Sayeeda Warsi is to become Minister of State at the Foreign Office and Minister for Faith and Communities. She will attend Cabinet.
Theresa Villiers has been appointed new Northern Ireland secretary. Owen Paterson has moved from Northern Ireland to become Environment Secretary
Iain Duncan Smith and Michael Gove will keep their jobs in the cabinet, a senior Downing Street source said.
The source said the Work and Pensions Secretary and the Education Secretary were considered "key reformers" by the Prime Minister.
"He wants them to stay in place to get the job done."
The confirmation came amid reports that Mr Duncan Smith had been offered an alternative role - perhaps the Justice brief expected to be vacated by Mr Clarke.
72-year-old Clarke - a Nottinghamshire miner's son - was brought back from the political wilderness two years ago to give the coalition Government some much-needed heavyweight experience at a time of economic crisis.
But instead he managed to make headlines for all the wrong reasons, clashing with Home Secretary Theresa May and becoming the focus of a campaign to axe him for appearing to be soft on crime.
He has been an MP for more than 40 years, first serving his constituency when his now-party leader was just a four-year-old boy.
Since then, he has served as health secretary, education secretary and home secretary, earning a reputation for being tough-talking and quick-witted.
But as Justice Secretary he sparked fury in May last year for suggesting some rapes were not as serious as others.
He was also forced to scrap plans to halve sentences for offenders who pleaded guilty early when the public furore led to David Cameron stepping in to rule out any change in the position.
The seasoned political operator's string of indiscreet comments about Conservative colleague Mrs May pushed him back into the political spotlight last October.
He admitted he rather regretted his use of colourful language after he attacked Mrs May's use of "laughable and childlike" examples to criticise the Human Rights Act after she claimed an illegal immigrant escaped being deported because he had a pet cat.
The spat dominated much of the Conservative Party conference last year.
Further controversies followed, with Mr Clarke dropping plans to abolish the post of chief coroner last November amid heavy opposition from the Royal British Legion.
His legal aid reforms also left campaigners angry, leading to a number of concessions to make it easier for victims of domestic violence to claim legal aid.
And in May, Mr Clarke's Justice and Security Bill created controversial new rules to hear evidence in secret in civil court cases where national security is a factor.
Many put his indifferent attitude to causing uproar down to the fact he had nothing to lose as he knew it would be his last big job in government.
He has been an MP since 1970, but it was not until 1988 that he was promoted to the cabinet.
Taking the reins as chancellor in 1993 after former leader John Major forced Norman Lamont to quit in the wake of Black Wednesday, he presided over a period that saw interest rates, inflation and unemployment all falling.
When the Conservative government fell in 1997 Mr Clarke was one of the first to enter the race to become the new leader - the first of three failed attempts to take the helm of the party.
His affable nature combined with his love of beer and sport have made him an often popular figure with the public, but his more liberal views on crime and strident pro-European stance have made him unpopular with many in the party.
He has also attracted controversy for his business interests, including a highly paid vice-chairmanship of British American Tobacco.
Known for his love of jazz, cigars, classic cars and Hush Puppy shoes, he is also a cricket and football enthusiast and a fervent supporter of Nottingham Forest.
The MP for Rushcliffe became a Conservative at Cambridge, where he was president of the Union in 1963. While there he met his wife Gill, a director of Oxfam.