Foreign Minister Kasymzhomart Tokayev will replace him and has 10 days in which to announce a new government team.

Mr Balgimbayev said he had spoken to Kazakh President Nursultan Nazarbayev on Thursday, and told him that the government needed new blood.

The BBC's Louise Hidalgo in Almaty: President Nazarbayev's scapegoat resigns

A government spokesman said that Mr Balgimbayev's resignation was motivated by "personal reasons".

In a country where President Nazarbayev enjoys sweeping executive powers over the government and parliament, Mr Balgimbayev's exit is unlikely to cause a marked change in Kazakhstan's political landscape.

Return to old job

The outgoing prime minister said he "managed to persuade the president that very important tasks faced Kazakhstan's oil and gas sector".

Mr Balgimbayev said he was returning to head the national oil and gas company Kazakhoil, the job he had been doing until 1997 when he was appointed prime minister.

He is widely expected to adopt a cautious approach towards foreign investors.

Links to West

Mr Tokayev has been foreign minister since October 1994.

The 46-year-old career diplomat has helped Kazakhstan build ties with the West, particularly the United States, while at the same time moving cautiously closer to neighbouring China and keeping good relations with Moscow.

He has maintained a high profile in recent months, seeking to play down an embarrassing arms scandal which revealed that Kazakhstan had sold MiG jet fighters to international pariah North Korea.

Economic pain

Mr Balgimbayev, 51, had been under mounting pressure since the start of the year as the economy of the resource-rich but impoverished state of 15 million people went into sharp decline.

He had to force two painful budget revisions through a reluctant parliament and announced in April that the national currency - the tenge - was being devalued, leading to a sharp drop in people's standard of living.

The Kazakh economy contracted 2.5% last year and is expected to decline 1.5% in 1999.

From 1994 to 1997 Kazakhstan, a former Soviet republic, privatised more than half of its state property, opening its vast oil, gas and mineral reserves to foreign investors.

President Nazarbayev has been keen to encourage investment

However, the policy has brought fewer benefits than expected. Falling world commodity prices have reduced returns, and logistical problems has limited exports. Kazakhstan is a land-locked country and so far it has not completed any new pipelines, leaving it reliant on old routes through Russia.

Mr Balgimbayev has become increasingly opposed to selling strategic enterprises to foreigners, while President Nazarbayev has remained keen to encourage international investment.

President Nazarbayev won a new seven-year term in January.

His main opponent, Akezhan Kazhegeldin, whom Mr Balgimbayev had replaced as prime minister two years ago, was barred from running on a legal technicality.