In the most surprising decision he took months after his election as the Egyptian president, Mohammad Mursi ordered on Sunday the retirement of his defense minister.
He also said a constitutional declaration aimed at curbing presidential powers had been cancelled.
Field Marshal Hussein Tantawi, who ruled Egypt for more than a year after the revolution that toppled former president Hosni Mubarak, was replaced by Abdel Fattah al-Sissi.
The army leader had served as Mubarak's defense minister for two decades and headed the country after his overthrow, until he handed power to Mursi on June 30.
Armed forces chief of staff Sami Anan was also retired, state television said.
Mursi decided to scrap a key constitutional document which gave the military legislative powers and other prerogatives, his spokesman Yasser Ali said.
He amended the interim constitution to deny the military any role in public policy-making, the budget and legislation, and the right to pick a constituent assembly drafting a permanent constitution for post-Mubarak Egypt.
"Given the circumstances, this is the right time to make changes in the military institution," said Mourad Ali, a senior official with the Muslim Brotherhood's Freedom and Justice Party which fielded Mursi in a May-June presidential election.