Peter MacKay has replaced Gordon O'Connor as the new minister of defence, while Maxime Bernier and Jim Prentice have emerged as big winners in Prime Minister Stephen Harper's cabinet shuffle.

O'Connor, the retired general and Ontario MP, was criticized as a poor communicator on the government's crucial Afghanistan agenda.

"The Afghan mission remains Canada's most important military and foreign affairs commitment in the world," Harper told reporters.

"We know there are challenges there. At the same time, the United Nations wants us there and we made a commitment to our allies and the Afghan people."

Bernier, a Quebec MP first elected in 2006, has moved from industry to foreign affairs, replacing MacKay.

"He's a young minister and he has a very strong point of view on economic situations, and also for the development of the government," said Harper.

"He has earned a new challenge, and I hope and I believe he will represent Canada in a very efficient way on the world scene."

Bernier will also be tasked with drumming up support for the Afghanistan mission in Quebec, where polls show little enthusiasm for Canada's military efforts in the war-torn country.

Prentice, an Alberta MP who is considered one of Harper's most able ministers, has been moved to the industry portfolio from Indian affairs.

The Conservative minority government is expected to shift to a "second phase" with Wednesday's shuffle held at Rideau Hall in Ottawa.

The prime minister is expected to prorogue Parliament, deliver a throne speech and move to a new agenda beyond the five priorities it touted in the 2006 election campaign.

Modernizing Canada's economy is going to be a key part of that agenda, which will make industry a key portfolio.

Some other cabinet moves:

• Saskatchewan MP Gerry Ritz becomes agriculture minister, having been a secretary of state for tourism. He replaces fellow Saskatchewan MP and Revenue Minister Carol Skelton, who has announced she won't run again.
• O'Connor becomes revenue minister.
• Another new face in cabinet is Alberta MP Diane Ablonczy, who replaces Ritz.
• Current Agriculture Minister Chuck Strahl, a B.C. MP, becomes Indian Affairs minister.
• Quebec MP Josee Verner becomes heritage minister, swapping jobs with Ontario's Bev Oda, who becomes international development minister.

Harper's new cabinet has 26 full ministers and only seven are women -- the same number as the previous cabinet.

"The real problem facing the prime minister is he doesn't have a lot of women in caucus from which to select cabinet ministers," political scientist Barry Kay told CTV Newsnet.

"As we lead up to the next election, I think it very much behooves the Conservatives to think about not just getting more women candidates, but getting them nominated in ridings they can win."

Liberal Leader Stephane Dion said the number of high-profile moves in Tuesday's shuffle highlighted problems within Harper's cabinet.

"Mr. Harper is persisting to call his government the 'new' government, but now he has his third cabinet. So maybe it's time for him to stop blaming Liberals for everything, and start blaming his previous two cabinets," he said.

Dion added that while Harper has put better spokespeople in place, "it will change nothing regarding policies."

NDP Leader Jack Layton, who had repeatedly called for O'Connor's removal, said MacKay's appointment would make little difference in policy.

"Now we have Mr. MacKay, who has also defended the war in Afghanistan very strongly, so we're clearly not seeing any change in direction," he told CTV Newsnet.

Retired Maj.-Gen. Lewis MacKenzie said MacKay will have to do far more than explain the Afghanistan mission to the public. He said there are growing issues within the military that need attention.

"The military is in crisis on spending, it's in crisis on having enough instructors to train new recruits," said MacKenzie.

"The military has some serious issues that have to be dealt with. Gordon O'Connor was attacking those, and I'm sure Peter MacKay will continue the offensive."

Canada's economy

Jim Flaherty had kept his post as finance minister, despite enduring a backlash for the government's decision to tax income trusts -- essentially breaking an earlier campaign promise.

But Flaherty will no longer chair the cabinet committee on economic affairs, and has lost his position as vice chair of the treasury board. Insiders said that move signals displeasure with his political handling of the income trust issue.

Flaherty also came under fire for the government's new equalization formula, which Nova Scotia Premier Rodney MacDonald argued will hurt the province's Atlantic Accord offshore deal.

MacDonald had earlier told The Canadian Press that change at the ministry "wouldn't be such a bad thing."

But Flaherty is expected to be crucial in enacting the government's long-term economic agenda, which is expected to focus on the Finance Department's Advantage Canada blueprint.

The 2006 document proposes eliminating Canada's net debt within a generation, cutting taxes, investing in education and infrastructure, and de-regulating industry.