The king of Saudi Arabia has appointed his son Mohammed bin Salman as crown prince, making him first in line to the throne at the expense of his nephew, Mohammed bin Nayef, a well known counterterrorism figure.

Prince bin Salman, 31, is currently deputy crown prince. The young royal – who has built his reputation as a bold economic reformer and for his hawkish foreign policy – will continue in his position as defence minister as well as become deputy prime minister in the new role.

He replaces his cousin Prince Mohammed bin Nayef, 27 years his senior, who was dismissed by King Salman by royal decree on Wednesday. The young prince is now by some stretch the second most powerful person in the kingdom – and if his ailing 81-year-old father dies, he will be the youngest king the modern state has ever seen.

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To celebrate the appointment, King Salman ordered the reinstatement of all benefits and allowances for government employees that have been curbed by austerity measures, and granted additional days off for the upcoming Eid holiday at the end of Ramadan.

The appointment of such a young royal as the immediate heir to the throne efectively sets the tone for Saudi policy for decades; Saudi Arabia’s stock market was up by more than 3.5 per cent in mid-day trading on Wednesday.

Prince bin Salman’s rise has followed that of his father: King Salman ascended to the throne in January 2015 after the death of his half-brother Abdullah bin Abdul Aziz. Mohammed, previously in charge of his father’s royal court, has been rapidly promoted since then to various cabinet posts at the expense of those older or more experienced.

The young prince is widely seen as the face of modern Saudi Arabia. Unlike older generations of the Saudi royal family, he has embraced media attention, his image constantly on billboards and televisions. He is the driving force behind ‘Vision 2030’, the kingdom’s long term economic plan to wean itself off dependence on oil, and is popular for his reforms to the country’s ineffective state bureaucracy.

In pictures: President Donald Trump on tour Show all 39 1 /39 In pictures: President Donald Trump on tour In pictures: President Donald Trump on tour 20 May 2017 US President Donald Trump and Saudi Arabia's King Salman bin Abdulaziz al-Saud arriving for a reception ahead of a banquet at Murabba Palace in Riyadh Getty Images In pictures: President Donald Trump on tour 20 May 2017 US President Donald Trump, accompanied by First Lady Melania Trump, and Saudi Arabia's King Salman bin Abdulaziz al-Saud being welcomed at Murabba Palace in Riyadh Getty Images In pictures: President Donald Trump on tour 20 May 2017 US President Donald J. Trump with King of Saudi Arabia Salman bin Abdulaziz Al Saud during a welcome ceremony with traditional sword dancers at Murabba Palace, in Riyadh, Saudi Arabia EPA In pictures: President Donald Trump on tour 20 May 2017 King of Saudi Arabia Salman bin Abdulaziz Al Saud with US President Donald J. Trump and wife Melania during a welcome ceremony at Murabba Palace, in Riyadh, Saudi Arabia EPA In pictures: President Donald Trump on tour 20 May 2017 US President Donald Trump adjusts the Collar of Abdulaziz Al Saud Medal, after it was bestowed upon him by Saudi Arabia's King Salman bin Abdulaziz Al Saud at the Royal Court in Riyadh, Saudi Arabia Reuters In pictures: President Donald Trump on tour 20 May 2017 Saudi Arabia's King Salman bin Abdulaziz Al Saud presents U.S. President Donald Trump with the Collar of Abdulaziz Al Saud Medal at the Royal Court in Riyadh, Saudi Arabia Reuters In pictures: President Donald Trump on tour 21 May 2017 Palestinians print posters depicting US President Donald Trump in preparations for his planned visit, in the West Bank town of Bethlehem Reuters In pictures: President Donald Trump on tour 21 May 2017 US President Donald Trump accompanied by first lady Melania Trump, his daughter Ivanka Trump and her husband White House senior advisor Jared Kushner, before delivering his remarks to the Arab Islamic American Summit in Riyadh, Saudi Arabia Reuters In pictures: President Donald Trump on tour 21 May 2017 US President Donald Trump looks on as U.S. Secretary of State Rex Tillerson and Saudi Arabia's Crown Prince Muhammad bin Nayef exchange a memorandum of understanding Reuters In pictures: President Donald Trump on tour 21 May 2017 First Lady Melania Trump shares a laugh with a child during a visit to the American International School in the Saudi capital Riyadh Getty Images In pictures: President Donald Trump on tour 21 May 2017 US President Donald Trump holds a bilateral meeting with Bahrain's King Hamad bin Isa Al Khalifa AP In pictures: President Donald Trump on tour 22 May 2017 Israeli soldiers rest during preparations ahead of President Trump's landing in Tel Aviv, Israel Getty Images In pictures: President Donald Trump on tour 22 May 2017 First Lady Melania Trump makes her way to board Air Force One in Riyadh as she heads with her husband the US President to Israel Getty Images In pictures: President Donald Trump on tour 22 May 2017 US President Donald Trump and first lady Melania Trump board Air Force One for Israel, the next stop in Trump's international tour, at King Khalid International Airport AP In pictures: President Donald Trump on tour 22 May 2017 Israeli soldiers wait for the arrival ceremony of US President Donald Trump at Ben Gurion airport near Tel Aviv, Israel AP In pictures: President Donald Trump on tour 22 May 2017 US President Donald Trump and first lady Melania Trump arrive aboard Air Force One at Ben Gurion International Airport in Lod near Tel Aviv, Israel Reuters In pictures: President Donald Trump on tour 22 May 2017 US President Donald Trump and first lady Melania Trump disembark Air Force One on arrival at Ben Gurion International Airport AP In pictures: President Donald Trump on tour 22 May 2017 US President Donald J. 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Trump, touches the Western Wall, Judaism's holiest prayer site, in Jerusalem's Old City EPA In pictures: President Donald Trump on tour 22 May 2017 President Donald Trump visits the Western Wall AP In pictures: President Donald Trump on tour 24 May 2017 US President Donald J. 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Trump EPA In pictures: President Donald Trump on tour 24 May 2017 Pope Francis gets into is car after meeting with US President Donald Trump AP In pictures: President Donald Trump on tour 24 May 2017 President Donald Trump and his wife Melania look at the frescoed ceilings during their visit to the Sistine Chapel at the Vatican L'Osservatore Romano/Pool Photo via AP In pictures: President Donald Trump on tour 24 May 2017 US President Donald Trump security vehicles are seen in front of Air Force One before take off from Leonardo da Vinci-Fiumicino Airport in Rome, Italy Reuters In pictures: President Donald Trump on tour 24 May 2017 US President Donald Trump and First Lady Melania Trump wave to reporters before boarding the Air Force One to Brussels, at the end of a 2-day visit to Italy including a meeting with Pope Francis at the Vatican, at Rome's Fiumicino international airport AP

In his role as defence minister he has attracted criticism from older Saudis and internationally for his role in Saudi Arabia’s bloody intervention in the Yemeni civil war, as well as his aggressive stance on Iran. The prince is also regarded as one of the primary decision makers behind the recent Gulf states’ cutting of ties with Qatar.

But to younger generations, used to elderly kings and princes, the socially liberal Prince bin Salman’s rise is a sign that things in the conservative kingdom are changing.

Mohammed's younger brother Khaled, a former jet fighter pilot believed to be in his 20s, was also promoted to the prestigious role of US ambassador earlier this year. On Wednesday, another young prince, Abdulaziz bin Saud, 33, was named the new interior minister tasked with counterterrorism efforts and domestic security, replacing the former crown prince bin Nayef in the role.

58-year-old Prince bin Nayef – who headed domestic security for many years – is known for his tough stance on jihadi militancy and maintained good relations with the kingdom’s western allies, but has recently been seen less and less in the public eye.

Notably, Prince bin Salman accompanied a royal delegation on a March visit to Washington DC to meet President Donald Trump’s administration, while Prince bin Nayef did not.

The Saudis hailed the DC trip as a “historic turning point” in which the two countries discussed their common foe of Iran and cooperation in the fight against Isis. It also laid the groundwork for Mr Trump’s first trip abroad to Riyadh, where he reiterated his support for the US’ Saudi allies against their regional rival.

The new Crown Prince doubled down on the combative stance in comments made to state television in May, when he framed the tensions with Tehran in sectarian terms and vowed to “take the battle” to Iran.