Putin thanked members of the government for their work, but added that "not everything has worked". Putin added that he will meet with each member of the cabinet in the near future. Mass resignation includes Medvedev.
The surprise announcement came after Putin proposed constitutional amendments that would strengthen the powers of the prime minister and parliament at the expense of the presidency.
Taking power from the presidency and handing it over to parliament could signal a change of power that has long been speculated in Russia.
Putin's critics have suggested that he is considering various scenarios to maintain his grip on control after 2024, including the possibility of becoming prime minister with extended powers. Likewise, in 2008 Putin exchanged seats with the prime minister to circumvent the constitutional provision that prohibits the same person from serving two consecutive terms.
In his statement, Medvedev indicated that the government was stepping down to pave the way for Putin's proposed reforms.
Putin "outlined a series of fundamental changes to the constitution, significant changes not only for a number of articles of the constitution, but also for the balance of power as a whole," said Medvedev in his statement, broadcast on television of Russian state.
"In this context, it is obvious that we, as a government … should offer the president of our country the opportunity to make all the necessary decisions for this. And under these conditions, I think it would be fair, in accordance with Section 117 of the constitution ", for the government to step down, added Medvedev.
In his annual address to the Federal Assembly last Wednesday, Putin said he agreed that no one should serve as president for more than two consecutive terms and proposed several constitutional amendments.
His key proposal is to transfer the power to select the prime minister and cabinet from president to parliament.
"I know that a constitutional provision is under discussion in our society that the same person should not be president for more than two consecutive terms," Putin said. "I don't think this is a fundamental problem, but I agree," he said.
"I propose … to entrust the State Duma with the power to approve the prime minister's candidacy, and then, on the prime minister's proposal, [appoint] all deputy prime ministers and federal ministers," Putin said. "In this case, the president will be obliged to nominate them, that is, he will not have the right to refuse applications approved by parliament."
According to the current constitution, the president must obtain the approval of the lower house of parliament to appoint the head of government, and it is therefore in presidential rights to appoint all deputies and ministers.
In a televised statement, Putin asked current members of the government to fulfill their duties until a new one is formed.
"I want to express satisfaction with the results that have been achieved," Putin said. "Obviously not everything worked, but nothing ever worked in full."
Medvedev is expected to become vice-president of the Security Council of Russia. Putin is the president.