Putin relieved Anatoly Serdyukov of his duties and replaced him with Sergei Shoigu, RIA Novosti reported.
"Taking into consideration the situation that has emerged regarding the Defense Ministry, in order to create the requisite conditions for an objective investigation of all the issues, I made the decision to relieve Defense Minister Serdyukov of his duties," Putin said.
The firing allows Russia's Investigation Committee to question Serdyukov about alleged real estate scams involving nearly $100 million.
In the past, Putin has been reluctant to dismiss members of his inner circle, preferring instead to shuffle officials around into different positions, The New York Times reported.
The dismissal and corruption investigation could indicate a personal conflict, or a way to settle a score, Masha Lipman, a researcher at the Carnegie Moscow Center said.
"And in an environment as corrupt as Russia, almost anyone can fall victim," she said.