John Reid and David Blunkett have emerged as victors in a wide-ranging Cabinet reshuffle announced in the wake of Labour's reduced Commons majority.

The government's senior ranks remain unchanged, although defence secretary Geoff Hoon is effectively demoted to the position of leader of the House of Commons.

Blairite loyalist John Reid becomes secretary of state for defence in what is seen as a reward for loyalty.

David Blunkett, who quit his position of home secretary after it emerged he fast-tracked a visa for his lover's nanny, becomes work and pensions secretary.

He will be charged with leading the government's response to the Turner review of pensions which is expected this autumn.

The appointment will be criticised by opposition parties but is again being seen as a reward for loyalty to the prime minister.

Negotiations

The reshuffle followed a day of negotiations between the prime minister and his senior colleagues.

Tony Blair consulted with Gordon Brown and Jack Straw, both of whom remain in their current senior government posts.

Reid is replaced as health secretary by Patricia Hewitt, who becomes the Cabinet's highest ranking woman.

Margaret Beckett, who had been tipped as someone who could lose her job, remains in post.

Deputy prime minister John Prescott loses part of his empire to David Miliband, who becomes minister of communities and local government.

Prescott, who may stand down from the government mid-way through this parliament becomes first secretary of state to compensate for the reduction in his portfolio.

Downing Street has insisted Prescott's position in government remains key, although Whitehall watchers will study his new role to assess whether he is being squeezed out.

Hain moves

Commons leader Peter Hain becomes Northern Ireland secretary at a critical time in the peace process. Paul Murphy is understood to be leaving the government.

Alan Johnson becomes secretary of state for productivity, energy and industry, where he replaces Patricia Hewitt in a revamped DTI.

He will lead a controversial review of energy policy, which could lead to a massive expansion of nuclear energy in the UK.

But the government is also being moulded in the chancellor's design in order to ensure Blair begins his third term in an inclusive style.

Two new Cabinet minister were announced by Downing Street.

Des Browne becomes chief secretary to the Treasury, replacing Paul Boateng.

And health minister John Hutton, widely seen as a safe pair of hands, becomes chancellor of the duchy of Lancaster.

Unchanged

Cabinet ministers Hilary Armstrong, Lord Falconer, Baroness Amos, Ruth Kelly, Ian McCartney and Charles Clarke all remain in their current posts.

Hilary Benn also remains in post as secretary of state for international development.

Controversially, attorney general Lord Goldsmith, who was criticised over his Iraq war legal advice, will remain in his position.

Brownite Douglas Alexander becomes the minister for Europe and number two to Jack Straw, who remains at the Foreign Office.

He will attend Cabinet meetings, where he will take the lead on next year's EU constitution referendum, but will not draw a Cabinet minister's salary.

Appointments to the junior and middle-ranking ministerial jobs are expected later tomorrow.