Italy's military intelligence chief Nicolo Pollari, accused of helping the CIA abduct an Egyptian imam in 2003, was sacked on Monday along with his domestic intelligence counterpart.
The SISMI chief had for months fended off accusations of complicity in the kidnapping of Osama Mustafa Hassan, also known as Abu Omar, from a Milan street in February 2003.
Abu Omar was reportedly taken to his native Egypt where he claims he was tortured under suspicion of having terrorist links.
In confessions made public in July, several SISMI officials described an active collaboration between the Italian agency and a CIA commando unit in the kidnapping.
The seizure was thought to be among scores of secret abductions of suspected terrorists around the world since the attacks of September 11, 2001, in the US government's so-called "extraordinary rendition" program.
It occurred shortly before the US-led invasion of Iraq, when then Italian prime minister Silvio Berlusconi was in power and a staunch US ally.
Pollari, 63, who has repeatedly denied any wrongdoing, has so far not given a detailed defence, saying he cannot divulge state secrets. Prosecutors are expected to seek a formal indictment by the end of November.
The sacked spy chief is also closely associated with Pio Pompa, a SISMI computer expert accused of seeking to smear center-left leader Romano Prodi, whose coalition won hard-fought elections in April.
Pompa was allegedly on the payroll of a prominent right-wing journalist, Renato Farina, and conducted illegal wiretaps on left-wing journalists and magistrates.
Abu Omar's kidnapping has caused a strain in US-Italian relations for months.
Roberto Castelli, who was justice minister under Berlusconi, refused to transmit a request for the extradition of 26 US citizens -- 25 CIA agents and an air force colonel -- named in the Abu Omar case to Washington.
The new justice minister, Clemente Mastella, has so far not acted on a similar request.
The 26 are already the subject of a Europe-wide arrest warrant.
Prime Minister Prodi has vowed to improve the efficiency of the intelligence services and give parliament more control over them. Parliament is to discuss the reforms next week.
The intelligence overhaul, announced following a cabinet meeting, saw Admiral Bruno Branciforte, 58, former head of naval intelligence, taking charge of SISMI.
General Mario Mori was replaced at the head of the domestic spy agency SISDE by police anti-terrorism official Franco Gabrielli, while the head of the intelligence co-ordinating agency, Emilio del Mese, was replaced by retired general Giuseppe Cucchi, an advisor to Defence Minister Arturo Parisi.
Prodi described the reshuffle as a "natural rotation". He added however: "We have selected people who are strangers to cliques and political games, with long experience and with successful professional track records."
Italian media say the government wanted to save face as well as avoid destabilisation of the spy services at a time when thousands of Italian troops are in harm's way in Iraq, Afghanistan and Lebanon.