The Kremlin yesterday faced warnings of looming trouble for the Russian economy after President Dmitry Medvedev ousted his Finance Minister in the most bitter clash inside the elite for years.

Finance Minister Alexei Kudrin, who had been in his job since 2000 and won global plaudits for his work, resigned after objecting to the plan that would make Mr Medvedev Prime Minister when Vladimir Putin returns to the Kremlin.

Mr Kudrin is the first casualty of Russia’s new political strategy and his dissent exposed unexpected cracks over the scheme for the 2012 elections within a ruling establishment that usually never airs its disputes in public.

His exit could also disturb Western investors who have long been reassured by Kudrin’s adamantine resistance to the extravagant spending demands by Russian ministers and his canny saving of the proceeds from Russia’s oil exports.

“Alexei Leonidovich – if you do not agree with the policy of the President, then you have one option and you know what it is – to resign,” an incandescent Mr Medvedev told Mr Kudrin at a meeting broadcast on state television.

Barely flinching, Mr Kudrin told Mr Medvedev: “I do indeed have differences with you”. In a final act of defiance, he refused to resign on the spot but hours later the Kremlin confirmed that Mr Medvedev had signed the resignation decree.

Although clearly approved by Mr Putin, the drama means Russia’s ruling duo are losing the country’s most respected economist at a time when a new global financial crisis is raising fears over Russia’s dependence on oil exports.

“This local event is a strong negative signal for Russia’s investment case”, Russia’s leading private bank Alfa Bank wrote in a note to clients.

“We believe that his abrupt resignation creates a risk of substantial deterioration in Russian budget discipline, which is particularly dangerous in the event of a crisis.”

Renaissance Capital said any benefits of political stability from Mr Putin’s presidential bid have now been outweighed by the exit of Mr Kudrin, who it described as “the market’s talisman” for over a decade.

“Capital outflows rather than inflows are the short-term danger,” it said.

Mr Kudrin is credited with clearing up the massive external debt that Mr Putin inherited from the 1990s, shielding Russia from the worst effects of the 2008 global financial crisis and convincing Western firms that it was safe to invest in Russia.

“Kudrin’s resignation will be a big blow for the Russian economy – experts are already forecasting a new wave of capital flight, a fall in the ruble rate and inflation growth,” said the daily Vedomosti.

A successor has yet to be named. Vedomosti said a possible contender is Health Minister Tatyana Golikova although there are also candidates within the finance ministry, while reformist ex-economy minister German Gref is another option.

Mr Kudrin outraged Medvedev by saying at the weekend that he would not serve under him as Prime Minister due to fundamental disagreements on economic policy, in particular a ramping up of military spending.

Mr Medvedev did not let the issue rest yesterday, saying after watching war games in western Siberia that the country must have strong military spending as “this is not a banana republic but the Russian Federation – a very great country”.

He warned: “However unpleasant it is for the budget, there is always going to be high spending on defence. And whoever does not agree with this can go work somewhere else.”

Sources quoted in the Russian press said that personal ambition had also fuelled Mr Kudrin’s outburst as he was furious that Putin had not opted to choose him for Prime Minister after allegedly making such a promise earlier this year.

Mr Putin, Russia’s President from 2000-2008, is almost certain to win the March elections and could serve two more terms to 2024, thereby overtaking Leonid Brezhnev as the longest serving Moscow leader since Joseph Stalin.

Economists said they did not expect Mr Kurdin’s departure to have a short-term effect on the Russian markets, which closely follow US trends, and both of Moscow’s main bourses were up two per cent in afternooon trade.