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Finance Minister Michalis Sarris resigned on Tuesday, hours after a judicial probe was launched into how Cyprus was pushed to the verge of bankruptcy before having to agree a crippling eurozone bailout.
He said he was stepping down as he would need to cooperate with judges probing the failure of Laiki Bank, of which he was chairman for much of last year. The bank's collapse was a major contributor to the island's near financial meltdown.
President Nicos Anastasiades accepted his resignation with "sadness" and lauded his "high political ethos" for stepping down to facilitate the probe.
The president named current labour minister, 40-year-old economist Haris Georgiades, to replace Sarris, spokesman Christos Stylianides said.
Zeta Emilianidou, permanent secretary at the commerce ministry, becomes the first woman in the cabinet, taking over Georgiades's post, Stylianides added.
Meanwhile, the government wrapped up talks with international lenders that will open the way for Cyprus to receive a 10-million euro bailout, Stylianides said.
"Today we have completed the forming of the memorandum, which is a precondition for the loan agreement," he said, adding that the period to implement the deal was extended by two years to 2018 to "ease pressure on the economy."
And the central bank announced an easing of capital controls imposed last week, raising the limit on business transactions from 5,000 euros to 25,000 and allowing people to issue cheques of up to 9,000 euros.
With public anger mounting, the government set up a judicial inquiry on Tuesday into the banking collapse.
Anastasiades called on the three-judge commission -- George Pikkis, Panayiotis Kallis and Yiannakis Constantinides -- to investigate himself and his family members as a "matter of priority" and with "extra vigour".
This is seen as a move to counter unsubstantiated allegations that his relatives used privileged information to get money out of the country before deposits were locked down.
Accusations have also been made against other leading politicians and business figures that they took advantage of their position to protect their assets from a hit on bank deposits imposed by EU-led creditors last month.
Anastasiades said nobody was immune from the inquiry, not even his extended family or the law firm in which he was a partner until recently.
"A series of acts or omissions from those authorised to manage the economy or the banking system led the country to the brink of bankruptcy, the dissolution of one its largest banks and the loss of billions from an impairment of deposits," Anastasiades said at the swearing-in ceremony.
The massive losses suffered by savers in the island's two largest banks in the first eurozone rescue package to punish larger depositors has sparked huge resentment against anybody seen as having taken unfair advantage to shirk their share of the burden.
The president lauded what he said was the "high political ethos and political sensitivity" reflected by Sarris' resignation, which he said "constitutes a phenomenon of a new approach with regard to what is happening in the Cypriot political life."
Central bank official Yiangos Demetriou told state radio meanwhile that savers in the island's largest lender, Bank of Cyprus, would also be able to access 10 percent of their deposits over 100,000 euros.
But he added that the representatives of the troika -- the European Central Bank, the European Union and the International Monetary Fund -- had asked for more information before agreeing to release the full 40 percent of deposits over that threshold that savers can be sure of retaining.
"Today, we will release 10 percent of the funds tied to the Bank of Cyprus," Demetriou told the radio.
Larger depositors could lose all of the remaining 60 percent of their balances over 100,000 euros depending on the costs of winding up and merging second-largest lender Laiki.
Savers in that bank will have to wait years to see any of their cash over 100,000 euros.
Banks have been operating under stringent capital controls since they reopened on Thursday, after a near two-week lockdown prompted by fears of a run on deposits.
Central Bank of Cyprus Governor Panicos Demetriades said in an interview with the Financial Times published on Tuesday that the remaining controls would be eased in stages.
"I can't really tell you if it will be seven or 14 days before capital controls end," Demetriades said. "We have to lift them gradually."