Lieutenant Governor Anil Baijal, according to an official message this morning, has "approved the portfolio reshuffle in the Delhi government." As minister, Mr Kejriwal will take charge of the Delhi Jal Board.
For the Water Ministry, this is the third change after Kapil Mishra - who was sacked after he publicly targeted Mr Kejriwal - and Mr Gautam, who was reportedly informed last evening that he was losing his ministry.
Sources say Mr Kejriwal, unmoved so far by opposition jibes of "a chief minister without portfolio", changed his mind after feedback from Bawana, the constituency where his Aam Aadmi Party (AAP) won a high-stakes bypoll victory last month.
Mr Kejriwal, say party leaders, promised while campaigning in Bawana to improve its water supply and he believes that people voted AAP expecting it to deliver on that pledge.
The Chief Minister's move signals his return to a theme that endeared AAP to the voters of Delhi and propped up the party's successful poll campaign - "Bijli-paani" or power and water. After coming to power in 2013, the AAP government had announced that it would provide 20,000 litres of water free to every household.
In May, the AAP chief fired Kapil Mishra - his close aide-turned-number one critic - saying his performance was far below the mark. Deputy Chief Minister Manish Sisodia briefly took charge of water before Mr Gautam was given the department.