MOSCOW (AP) -- President Vladimir Putin promoted Defense Minister Sergei Ivanov to first deputy prime minister Thursday in a move that strengthens his position as a top contender to replace the Kremlin leader in next year's election.

Anatoly Serdyukov, until now head of the federal tax agency, replaces Ivanov as defense minister.

Putin praised Ivanov in an announcement on the NTV network, saying his close ally "has fulfilled the tasks he faced as defense minister and fulfilled them successfully." He said Ivanov's duties would be broadened to include oversight of defense and some civilian industries, but that he could not hold both positions at the same time.

"He cannot carry out the defense minister's responsibilities — it's impossible to sit in two chairs," said Putin, who came out with further praise of a beaming Ivanov in a meeting with top Defense Ministry officials shown on state-run television.

Putin said he named Serdyukov, a longtime tax collection official with no military experience, as defense minister because a sweeping arms modernization program planned through 2015 requires an appointee with strong economic and financial experience.

Ivanov had previously served as one of several deputy prime ministers, while Medvedev was the sole first deputy prime minister.

Both Ivanov and Medvedev have in recent months received wide exposure in the Russian media, where coverage is heavily influenced by the Kremlin. Some analysts say their prominence shows that they are the top candidates to become Putin's anointed successor in the March 2008 election.

Medvedev, a lawyer, became first deputy prime minister in November 2005.

Putin also said he named Sergei Naryshkin a vice premier in charge of coordinating government activity on foreign trade, primarily with other former Soviet republics. Russia has been embroiled in disputes with several neighbors that have hurt its image in the West.