DILI (AFP) - Timor Leste's president accepted the resignation of independence hero Xanana Gusmao as prime minister on Monday, paving the way for a major government overhaul and a new chapter in the nation's short history.

Gusmao, who has served as either president or premier since Timor Leste became independent in 2002 following a long struggle against Indonesian occupation, submitted his resignation last week.

The departure of the former guerrilla fighter deprives Asia's youngest nation of a unifying figure who has helped resolve numerous crises, but analysts say it is time for Gusmao to step aside to enable a transition to a new generation of leaders.

At a Cabinet meeting, President Taur Matan Ruak announced "that he accepted the request for resignation," said the government in a statement.

It said that the president will now start the process of forming a new government, and "it is expected that the constitution of the new government will be concluded at the end of this week".

A successor for Gusmao has not yet been chosen but the frontrunner is seen as former health minister Rui Araujo. Gusmao may remain be in government, but in a lesser role, observers predict.

Gusmao, who spent years living in the jungle during Indonesian occupation, had signalled over the past year that he would be stepping down but delayed the move repeatedly as he sought to ensure everything was in place for a smooth transition.

Analysts say that the cabinet reshuffle is likely aimed at getting rid of several ministers from Gusmao's coalition who have been accused of corruption.

The opposition Fretilin party is also likely to be brought into government, a move aimed at easing the half-island nation's often fraught politics.

Gusmao led the military wing of the Revolutionary Front for an Independent Timor Leste, which fought against Indonesian occupation. Before Indonesia invaded in 1975, Portugal had ruled Timor Leste for centuries.

After the Timorese voted overwhelmingly for independence in a UN-backed referendum in 1999, Gusmao returned to his homeland a hero from Indonesia, where he had been imprisoned, and was elected the country's first president in 2002.

He has been prime minister since 2007.

He remains hugely popular but has struggled to fulfil his pledges of improving livelihoods in the deeply poor country, and diversifying the economy away from abundant oil and gas reserves.