A royal decree removed Crown Prince Moqren bin Abdul Aziz bin Saud as next in line to the throne and replaced him with Prince Mohammed bin Nayef, who headed a crackdown on Al-Qaeda in the oil-rich kingdom a decade ago.
"We have decided to respond to his highness and what he had expressed about his desire to be relieved from the position of crown prince," said a statement from the royal court, carried by the official Saudi Press Agency.
The decree named "Prince Mohammed bin Nayef as crown prince" as well as deputy prime minister and said he will continue in his position of interior minister and head of the political and security council, a coordinating body.
A separate decree Wednesday said King Salman's son, Prince Mohammed bin Salman, who is in his early 30s, will be deputy crown prince.
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He retains his position of defence minister, in which he has recently played a key role in a Saudi-led coalition conducting air strikes on Yemeni rebels.
Moqren would have been the last son of the kingdom's founder, Abdul Aziz bin Saud, to rule.
He was a confidant of the late Abdullah, who appointed him deputy crown prince behind then-crown prince Salman in March 2014, an unprecedented move.
Moqren's removal leaves bin Nayef as the first of the second generation, or grandsons of Abdul Aziz, in line to lead the conservative Islamic kingdom.
The appointment of bin Nayef, 55, further solidifies control of Salman's Sudayri branch of the royal family. Their influence had waned under Abdullah.
Under Salman, Saudi Arabia has adopted a more assertive foreign policy, leading the Arab-dominated coalition targeting Iran-backed rebels in neighbouring Yemen since late March.