Her role was shrouded in secrecy, but she was rumoured to have been Yeltsin's closest aide and to have wielded influence over his choice of officials.
Tatyana Dyachenko, Mr Yeltsin's image adviser, symbolised the power of "The Family" - a tight-knit group of presidential confidantes - on Russian life.
Her role was shrouded in secrecy, but she was rumoured to have been Yeltsin's closest aide and to have wielded influence over his choice of officials.
Her dismissal was widely expected after Mr Yeltsin stunned the world by resigning the presidency on New Year's Eve.
Swiss prosecutors are currently probing corruption allegations against Ms Dyachenko.
She and other Kremlin officials and Yeltsin relatives are accused of taking bribes from a Swiss company that won lucrative Kremlin construction contracts.
Mr Putin has also dismissed Dmitry Yakushkin as presidential spokesman, although he is to remain in the presidential administration in another role.
No rest for Putin
The reshuffle came as Mr Putin shunned Russia's New Year holiday and went to work at the Kremlin.
With fighting still raging in the breakaway republic of Chechnya, Mr Putin met Russia's leading Chechen envoy to arrange a special meeting on the conflict.
On Saturday he made his first trip as president to the Russian-controlled Chechen town of Gudermes, where he decorated Russian troops.
Mr Putin's focus on the Chechen conflict is approved of by the Russian public and makes him a clear favourite to win an early presidential election - possibly in March.
'Daughter persuaded Yeltsin to quit'
Comments from the former Soviet premier Mikhail Gorbachev - reported by Italian newspaper La Stampa - suggest that Tatyana Dyachenko had an important role in persuading Mr Yeltsin to quit.
"It's those three who devised the Putin operation and they have now made the decisive move," Mr Gorbachev is quoted as saying.
He raised concerns that Mr Putin's appointment was not a sign of change in the Kremlin, but a continuation of the old regime.
"The regime won't change, there won't be a fight against corruption. The interests and the privileges of the oligarchy will be protected," he said.
"If it continues like this, Vladimir Putin will soon see his popularity wane, because people will see they have been tricked."