By making Interior Minister Mohammed bin Nayef, 55, crown prince and Defence Minister Mohammed bin Salman, 30, deputy crown prince, King Salman has effectively decided the line of succession for decades to come in the world's top oil exporter.
The reshuffle also cements relations with the United States. Prince Mohammed bin Nayef, who replaces Prince Muqrin, the successor chosen by the late King Abdullah before his death in January, enjoys closer personal ties with U.S. officials than almost any other senior royal, diplomats have said.
In another big shift, Salman replaced veteran Foreign Minister Prince Saud al-Faisal, who had served in the role since October 1975, with the kingdom's Washington ambassador Adel al-Jubeir, the first non-royal to hold the post.
While Mohammed bin Nayef is a familiar figure both inside the kingdom and in the West for his role in quashing an al Qaeda uprising and leading Saudi policy in Syria, Mohammed bin Salman is comparatively unknown.
Until four months and six days ago, the young Prince Mohammed had only served as head of his father's court, was a virtual stranger to the Saudi public and had had relatively little contact with the kingdom's foreign partners.
Since then he has become, as Defence Minister, the face of Saudi Arabia's newly-launched war in Yemen, with his bearded features rarely off television screens or street billboards, and is now established as a central figure.
The reshuffle also touched the oil sector, hugely sensitive to financial markets as the world's biggest petroleum exporting country holds the key to global supplies.
The chief executive of state oil firm Aramco, Khalid al-Falih, was appointed Health Minister, according to the text of the decree published on the official Saudi Press Agency (SPA).
Saudi-owned al-Arabiya television also reported he had been named chairman of state oil company Saudi Aramco, a position hitherto held by veteran Oil Minister Ali al-Naimi, who remained in his ministerial post.
The decree as published on SPA did not mention the new role at Aramco, but oil traders said they were closely monitoring the situation to see if there would be a new Aramco CEO and whether oil minister Naimi's position would be affected.
Naimi, who is 79 years old and has been oil minister since 1995, was seen as crucial in Saudi Arabia’s decision last November to not cut production in support of crude prices, which have halved since June 2014.
The changes come as Saudi Arabia navigates the messy aftermath of the Arab spring and has departed from decades of backroom politics by launching a military campaign in Yemen.
The Yemen move, closely associated with both Prince Mohammeds, is seen by analysts as reflecting a more assertive approach to Saudi Arabia's foreign policy under Salman and his ruling team.
It follows what many Saudis see as a decade of growing Iranian influence across the Middle East and a steady disengagement by Riyadh's historical main strategic partner Washington.
American officials have privately praised Prince Mohammed for his role in quashing Saudi Arabia's al Qaeda wing a decade ago and working with them against militant jihadists in Yemen and elsewhere, in embassy cables released by WikiLeaks
The replacement of Prince Muqrin, Salman's youngest half brother, as crown prince means the present monarch will be the last of the sons of Saudi Arabia's founder King Abdulaziz Al Saud to rule after five of his brothers.
That move also solidifies Salman's own branch of the ruling family. Abdullah's only son in a position of significant power now is Prince Miteb, who is head of the national guard and was retained in his post on Wednesday.
The new deputy crown prince, who also serves as head of a top committee on economy and development, was replaced as royal court chief on Wednesday by Hamed al-Sweilam, the decree said, possibly to answer critics who said he had too many jobs.