The decision to appoint General Phieu was believed to have been taken over the weekend.

Diplomats in the Vietnamese capital, Hanoi, were informed of the change by a senior party official on Monday.

Do Muoi: the outgoing party leader

General Phieu succeeds the veteran party figure, Do Muoi, who is 80, and who had been unwell for some time.

Do Muoi stepped down from the party politburo and central committee along with former prime minister, Vo Van Kiet and former president, Le Duc Anh.

Reform might not be on the agenda

General Phieu, who is 66, has a reputation as a conservative.

In the past, he has warned Vietnam's military to be alert for efforts by "imperialists" to foment unrest and destroy socialism.

He has also been prominent in moves to warn of external forces seeking to undermine communism by taking advantage of economic and political liberalisation.

One diplomat based in Hanoi said: "We would presume him to be a party man, not particularly dedicated to, or interested in, economic reform."

However, the diplomat also said that this may be too rigid an interpretation.

He added: "Vietnamese I have spoken to don't see him in such black and white terms."

Vietnam faces difficult decisions

The people of Vietnam face serious economic problems

Whatever his true colours, General Phieu will have to tackle serious economic problems, partly due to the turmoil in Asian financial markets.

Vietnam's began introducing market reforms in the late 1980s. However, its competitive edge has been eroded by the currency crises in neighbouring countries.

In addition, foreign investment in Vietnam is reported to have fallen nearly 40% in 1997 and outside donors have urged the country to speed up reform of the banking system and state enterprises.

One expert on Vietnam, Professor Carl Thayer of the Australian Defence Force Academy, said General Phieu was likely to have a hard time maintaining a balance between conservatives and reformers in the Communist Party.