The former head of Saudi intelligence, Prince Muqrin bin Abdulaziz al Saud, has been named the country's second deputy prime minister by King Abdullah.
The appointment puts Prince Muqrin third in line to succeed the 89-year-old Abdullah.
The second in line to the throne and first deputy prime minister, 77-year-old Prince Salman, is reportedly in ill health.
Prince Muqrin is said to share the king's commitment to cautious reform.
King Abdullah has moved to curb the power of hardline clerics by, amongst other things, limiting the fatwas they can issue.
He ordered a reorganisation of the religious police, installing a moderate as chief in the wake of growing public resentment.
The king opened a coeducational university and has given women the right to vote, albeit in largely irrelevant municipal elections. He has also pushed for fiscal reform and more meaningful economic diversification.
But Abdullah's health is said to be fragile after several back operations and long periods of recuperation.
And a source close to the royal family said that Prince Salman is about to leave the country and be absent for a month for health reasons.
Many observers had thought Prince Muqrin's removal as intelligence head last year meant that his stature was diminished. However Friday's announcement puts him at the top of the kingdom's power structure.
As concerns grow about Prince Salman's health, the duties of deputy prime minister are likely to fall more and more to Prince Muqrin.
Michael Stephens, an analyst at the Qatar-based Royal United Services Institute (Rusi) think-tank, described the move as "buying time for the next generation".
Prince Muqrin, 67, is one of the youngest sons of Saudi Arabia's founding King Abdul Aziz.
Mr Stephens described Prince Muqrin as "liberal-minded" and well liked in Washington and London.
"He will continue Abdullah's policy of slow and cautious change and ensure his legacy as a moderniser is secure," he said.