By Nick Bryant
BBC News, Sydney
Australia's opposition said Mr Garrett should have been dismissed
One of the Australia's most well-known politicians has been demoted following a bungled home insulation programme.
Peter Garrett, former lead singer with the band Midnight Oil, introduced the scheme that is linked to four deaths and more than 90 fires.
The Environment Minister will now be given reduced responsibilities.
The scheme has damaged the popularity of the Rudd government and the opposition have said that Mr Garrett should have been sacked.
The bungled national home insulation scheme has dominated Australian politics for much of this month.
There have been repeated calls from the opposition for the former rock star to be sacked.
The energy-saving scheme was a central part both of the Rudd government's economic stimulus package and its environmental strategy.
But four deaths of insulation installers have been linked to the programme since October, and 96 house fires.
Emergency inspections have also had to be ordered in tens of thousands of homes because of the risk of electrification from foil insulation that was incorrectly installed.
Rather than sacking his environment minister, the Australian Prime Minister Kevin Rudd decided to strip Mr Garrett of many of his responsibilities.
"There's no point sugar-coating this," said Mr Rudd in admitting serious problems with the scheme.
With an election expected later this year, this whole debacle has dented the Rudd government's popularity and undermined the prime minister's reputation for diligence and competence.
The opposition says Mr Garrett should have been sacked.