RIYADH (AFP) - Saudi King Salman replaced his long-serving oil minister on Saturday as part of a major government overhaul which comes as the kingdom grapples with a slump in energy revenues.

The revamp follows last month's announcement of an ambitious plan to transform Saudi Arabia's economy to reduce its dependence on oil.

Ali al-Naimi, who held the post of oil minister for more than two decades, was one of the most powerful figures within the Opec oil cartel.

But recently his influence appeared to have been curbed by the growing power of Salman's son Prince Mohammed who has taken charge of economic policy.

Naimi has been replaced by Khaled al-Falih, previously health minister, who takes the enlarged portfolio of energy, industry and mineral resources, according to a royal decree announced Saturday by state media.

Among other changes, a new central bank governor was announced and the ministry of electricity and water was scrapped.

Naimi, described by Forbes magazine in 2014 as "the world's most powerful oilman", oversaw a major change in policy towards the end of his tenure as Opec refused to cut production despite a price plunge.

Instead, the kingdom focused on protecting its market share and driving out less-competitive players, including US shale producers.

Major oil producers failed in Doha to reach an agreement on freezing output last month as Saudi Arabia insisted any deal must include all Opec members, including rival Iran, which boycotted the talks.

Naimi was born in 1935, two years before the first commercial quantities of oil were discovered in the kingdom's east.

He obtained a master's degree in geology from Stanford University and then joined the Aramco oil company, according to an official biography.

He was a supervisor at an oilfield before rising through a series of management roles to become president of Saudi Aramco in 1983 and oil minister 12 years later.

He had kept his post despite two major Cabinet shakeups last year under Salman, who acceded to the throne in January 2015 after the decade-long reign of King Abdullah ended.

Under his father, Prince Mohammed has emerged as one of Saudi Arabia's most influential figures since being named second-in-line to the throne last year.

The deputy crown prince, who is also defence minister, was the main public figure behind the unveiling last month of a long-term reform programme, dubbed "Vision 2030", to restructure the economy.

The plan will see the country create the world's largest sovereign investment fund and sell shares in state energy giant Aramco.

For decades, Saudi Arabia, the largest economy in the Arab world, enjoyed a windfall from its massive and easily exploitable oil reserves.

Flush with oil revenues, the nation has built up enormous fiscal reserves and provided its 21 million citizens with a generous system of public employment, welfare benefits and subsidised utilities.

But analysts have long warned that the Saudi system, which counted on oil for 73 per cent of state revenues last year, is deeply bureaucratic and inefficient.

Riyadh posted a record budget deficit in 2015 and a US$87 billion (S$118 billion) shortfall is projected for this year.