Crisis-hit Chancellor Kwasi Kwarteng has been sacked less than five weeks after being appointed.
In a day of high drama, Liz Truss fired her long-term ally after just 38 days in office as their calamitous mini-Budget collapsed around them.
He was replaced by former Health Secretary Jeremy Hunt, a prominent backer of Rishi Sunak, in a desperate bid by Ms Truss to unite warring Tory factions.
Chief Secretary to the Treasury Chris Philp was demoted to become Paymaster General, and replaced by Edward Argar at the Treasury.
Mr Kwarteng said he had accepted the PM's request to "stand aside" as Chancellor in his resignation letter.
He said: "We have been colleagues and friends for many years. In that time, I have seen your dedication and determination.
"I believe your vision is the right one. It has been an honour to serve as your first Chancellor".
He claimed the PM's "vision of optimism, growth and change was right" and said it was important to emphasise the Government's commitment to "fiscal discipline".
"The medium-term fiscal plan is crucial to this end, and I look forward to supporting you and my successor to achieve that from the backbenches," he added.
In her letter, Ms Truss said: "Thank you for your letter. As a long-standing friend and colleague, I am deeply sorry to lose you from the Government.
"We share the same vision for our country and the same firm conviction to go for growth.
"You have been Chancellor in extraordinarily challenging times in the face of severe global headwinds."
She praised him for his work on the energy support scheme and slashing taxes.
Ms Truss went on: "I deeply respect the decision you have taken today. You have put the national interest first.
"I know that you will continue to support the mission that we share to deliver a low tax, high wage, high growth economy that can transform the prosperity of our country for generations to come.
"Thank you for your service to this country and your huge friendship and support. I have no doubt you will continue to make a major contribution to public life in the years ahead."
Mr Kwarteng paid the price as the embattled Prime Minister struggled to stabilise her administration - with mutinous Tories openly plotting to oust their second leader in a matter of months.
She is also expected to make another massive U-turn by reversing her plans to axe a planned corporation tax rise in a press conference this afternoon.
Mr Kwarteng jetted back from Washington this morning for crisis talks after cutting short a trip to the International Monetary Fund (IMF) annual meeting.
He was spotted entering Downing Street by photographers at around midday, with his departure confirmed shortly afterwards.
Just a day after he insisted he was "not going anywhere", Mr Kwarteng became the second shortest serving Chancellor in history.
Tory Iain Macleod was made Chancellor in 1970 by Edward Heath but died in office a month later.
Caretaker Chancellor Nadhim Zahawi served for 63 days in Boris Johnson's zombie Government over the summer while the race to appoint a new Prime Minister took place.
Ms Truss will give a press conference this afternoon, where her key pledge to scrap the planned increase in corporation tax from 19% to 25% is seen as a likely casualty.
Whether it will be enough to calm the markets and restore her battered authority remains to be seen.
There are reports that senior Tories are plotting the possibility of replacing Ms Truss with a joint ticket of Rishi Sunak and Penny Mordaunt.
Shadow Chancellor Rachel Reeves said the whole Government had to go.
"Changing the chancellor doesn't undo the damage that's already been done," she said.
"It was a crisis made in Downing Street. Liz Truss and the Conservatives crashed the economy, causing mortgages to skyrocket, and has undermined Britain's standing on the world stage.
"We don't just need a change in chancellor, we need a change in Government."
