Tony Blair today sacked Charles Clarke, demoted Jack Straw and stripped John Prescott of his departmental brief in a wide-ranging reshuffle aimed at reinvigorating his government after heavy losses in yesterday's local elections.
The home secretary becomes the highest-ranking casualty of sweeping changes to the cabinet and will return to the backbenches after a string of Home Office blunders regarding the deportation of foreign criminals. John Reid is set to be the new home secretary, with Des Browne replacing him as defence secretary.
Shortly later a clearly bitter Mr Clarke said it was "the prime minister's right" to remove him but added that he "did not agree" that he would have stood in the way of the reform that is needed at the Home Office. Downing Street confirmed that he had turned down the offer of another, possibly more junior, job.
Mr Clarke said it would not be "appropriate" to stay in government and that he would return to the backbenches, where he said he would support Mr Blair staying in power for a full term.
David Cameron, on a visit to Hammersmith to celebrate a Tory council win described the sacking of Mr Clarke as a "great reversal" or "climbdown" by Mr Blair.
"It's the right thing to do, he lost public confidence so he had to go. A week ago the prime minister did not understand that but the reshuffle is not what is needed. A replacement is what is needed which we are going to have to wait a few years for that."
The deputy prime minister, Mr Prescott, has been stripped of much of his power after his affair with secretary Tracey Temple was exposed.
Jack Straw was the second senior minister to enter Downing Street at 8.20am as speculation centred on him losing the Foreign Office. He will assume the less prestigious position of leader of the Commons, replacing Geoff Hoon.
Margaret Beckett is one of the big winners of the reshuffle, becoming the first female foreign secretary, a reward for years of loyalty to Tony Blair.
Mr Blair's spokesman praised her as a "highly experienced minister with lots of foreign experience at Defra".
Mr Hoon replaces Douglas Alexander as Europe minister, a role that entitles the minister to attend cabinet but does not have full cabinet rank.
The Blairite former communities minister David Miliband, widely tipped as potential future Labour leader, is promoted to Mrs Beckett's old brief at environment, food and rural affairs. His promotion will be seen as a sign that Labour is taking seriously Mr Cameron's focus on the green agenda.
Ruth Kelly moves from the education brief, which saw serious Labour divisions earlier in the year over schools reform, to take over John Prescott's departmental brief covering housing and regional policy.
As part of the reorganisation, the Office of the Deputy Prime MInister will be scrapped and Ms Kelly will head a new Department for Communities and Local Government, which will also take on some Home Office responsibilities.
Alastair Darling moves from transport, given to Mr Alexander, to become the new trade secretary.
The Labour party chief whip, Hilary Armstrong, has been replaced by Jacqui Smith. Ms Armstrong was widely blamed by some for a whipping failure that led to a government defeat in the Commons earlier in the year.
Alan Johnson will take over the education brief from Ruth Kelly. With Labour MPs threatening to rebel in larger numbers on the controversial education bill when it comes out of committee in three weeks' time, Downing Street believes Mr Johnson can persuade more of them to back the government following his success over higher education top-up fees.
Ian McCartney, who joked to reporters on his way into Downing Street at 8.35am that his desired job "had gone to Steve McClaren" has been removed from cabinet to take up the job of trade minister under Mr Darling.
The new Labour party chair, Hazel Blears, told reporters in Downing Street she was delighted to be promoted to the cabinet.
The Guardian understands that Gordon Brown was not consulted by Tony Blair about the changes, except where the Treasury was involved. The chancellor told BBC Radio 4's Today programme that he had played no part in the process, saying it was "his [Tony Blair's] reshuffle".
The lord chancellor, Lord Falconer, and the leader of the Lords, Baroness Amos, both keep their jobs.
Mr Blair's spokesman later told journalists that the prime minister and Mr Prescott had discussed removing his departmental brief 12 months ago.
Mr Prescott, spared the humiliation of the sack, will still chair a "series of major cabinet committees to deliver the efficient development of government policy," said the spokesman.
He will also continue international work, with a focus on burgeoning economies such as China, and work on the environment in co-operation with the new environment secretary - yet to be appointed.
He will retain his role as power-broker and mediator between Labour's warring factions, new party chair Ms Blears said today. Further responsibilities are expected to be added to his s brief at a later time.
"The role that John's got is really important in bringing the parliamentary party together," she told Sky News.
"It's important that government has depth of experience and John Prescott has many years of bringing people together (and) resolving policy differences across government."
Ms Blears said Mr Prescott would also be looking into party funding, working with her and the party's national executive committee.
Mr Straw's move was said to have come after he made it clear to Mr Blair that after years at the Home Office and then the Foreign Office he wanted a different role.
Mr Straw will also have responsibility for House of Lords reform, party funding, and will chair the cabinet's constitutional affairs committee.
Mr Reid was said by No 10 to be "the right man to take over" from Mr Clarke - who until now Mr Blair had insisted was himself the right man to repair the damage after the foreign prisoners row.
He has often been regarded as the cabinet firefighter and is known by journalists as Mr Blair's rottweiler.
The Guardian understands that Mr Blair was urged to bring back John Denham, the chairman of the home affairs select committee, in a bid to heal some of the divisions post-Iraq. That move would have been controversial as Mr Denham has been increasingly critical of the leadership, calling on Mr Blair to set a timetable to handover to Mr Brown, a move fiercely resisted in Downing Street.
In an interview with BBC political editor Nick Robinson, Mr Clarke confirmed he had been offered other jobs in the government.
"The prime minister made it clear he didn't think I should continue as home secretary," said Mr Clarke.
"He did offer me a number of alternative posts in government but I felt it would be wrong to take them.
"I felt that I had staked my reputation on solving the problem of foreign national prisoners at the Home Office and I felt if I wasn't able to do that it was best to go to the backbenches.
"I think what he feels is the way the media has dealt with events over the recent period means that I as home secretary would be vulnerable over the next two or three weeks to events which could lead to instability and therefore make it less possible to solve the problem."
The Liberal Democrat leader, Sir Menzies Campbell, said: "The prime minister is having to shuffle with an increasingly battered pack. No amount of cosmetic surgery can disguise the fact that this government has suffered a permanent loss of credibility.
"He should not have waited until now to release the home secretary from his duties. He had said Charles Clarke should remain to sort out the mess at the Home Office. Mr Clarke has gone but the mess remains.
"The prime minister needs to spell out his own exit strategy."
The United Kingdom Home Secretary Charles Clarke has lost his position in a Cabinet reshuffle by Tony Blair, on the morning after the Labour Party suffered losses in local elections across England. The news follows two weeks of headlines caused by the release of over 1000 foreign prisoners mistakenly released from prison at the end of their sentence rather than being deported.

Current Defence Secretary John Reid will replace Clarke as the new Home Secretary, and Jack Straw will become Commons leader.