The Russian prime minister and entire government resigned on Wednesday as part of sweeping constitutional changes that could see President Vladimir Putin extend his hold on power.

Putin, in his annual address to parliament, proposed a referendum on amending Russia's constitution to increase the powers of parliament - while maintaining a strong presidential system.

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"I consider it necessary to conduct a vote by the country's citizens on an entire package of proposed amendments to the country's constitution," Putin said, without specifying a date for a referendum.

He suggested amending the constitution to allow lawmakers to name prime ministers and cabinet members.

The president currently holds the authority to make those appointments.

"It will increase the role of parliament and parliamentary parties, powers and independence of the prime minister and all cabinet members," Putin said.

"We will be able to build a strong prosperous Russia only on the basis of respect for public opinion.

"Together we will certainly change life for the better."

The role of governors would also be enhanced, he said, though Russia would maintain its presidential system.

"Russia must remain a strong presidential republic."

He also said he wanted to tighten the criteria for anyone wanting to become president - anyone wishing to become president must have lived in Russia for the past 25 years.

Prime Minister Dmitry Medvedev, who tendered his resignation to Putin, will be appointed the new deputy head of Russia's influential Security Council. He had been the PM for eight years.

"This is to show that Putin trusts Medvedev, who has been at his side for many years now," said Aleksandra Godfroid, a journalist in Moscow. "These changes do indicate a change in power structures, but at the same time, they do keep the president very strong."

Hours after the government resigned, Putin named federal tax chief Mikhail Mishustin, 53 years old and a relatively unknown technocrat, as the new prime minister.

Mishustin will face a vote of approval in the lower house of parliament on Thursday, the RIA news agency reported.

The shakeup sent shock waves through Russia's political elites, who were left pondering what Putin's intentions were and speculating about future cabinet appointments.

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Putin's current presidential term ends in 2024 and the constitution requires him to step down. He will be 71 at that time.

In his resignation announcement on state TV, Medvedev said he needed to quit to give Putin room to carry out the changes he wants to make.

The current government will continue its work until Putin hand-picks a new one to oversee the constitutional changes to Russia's systems and structures of power.

"The proposed changes to the constitution imply the government will actually be appointed by the Russian parliament, which is not how it is now, but at the same time, the president will retain the power to fire the government if he is not satisfied with their performance," said Godfroid.

"The president will also keep control of the army, police and security, and will be appointing the heads of those services," Godfroid added.

In the annual address, Putin steered away from significant foreign policy announcements, sticking mostly to domestic issues.

Russia last conducted a referendum in 1993 when it adopted the current constitution under Putin's predecessor, Boris Yeltsin.