The monarch replaced the heads of the ground forces and air defences, as well as civilian officials including several deputy ministers, in a series of late-night royal decrees.
No official reason was given for the sweeping overhaul, but it comes as Crown Prince Mohammed bin Salman pursues military reform and a bloody campaign against Yemen's Iran-aligned Huthi rebels nears the end of its third year.
"Termination of the services of General Abdul Rahman bin Saleh al-Bunyan, Chief of Staff," the official Saudi Press Agency (SPA) announced, adding that Fayyad al-Ruwaili had been appointed as his replacement.
Al-Bunyan was retired after he inaugurated an arms exhibition this week in Riyadh by the Saudi Arabian Military Industries (SAMI), the state-owned defence company, which has drawn several global defence firms.
"A military transformation is underway in Saudi Arabia," Theodore Karasik, a senior advisor at the consultancy Gulf States Analytics, told AFP.
"The changes come on the heels of the SAMI exhibition, which is a critical part of the Prince Mohammed's reform plan to create an indigenous defence program," he added,
Crown Prince Mohammed, the son of the monarch and heir to the throne, is the country's defence minister and has been consolidating his grip on power in recent months while pushing major economic and social reforms.
The young prince has pursued an assertive regional policy, including leading a military intervention in neighbouring Yemen since 2015 that is seen as a proxy war with arch-rival Iran.
More than 9,200 people have been killed in the conflict and another nearly 2,200 Yemenis have died of cholera, according to the World Health Organization.
King Salman also decreed a series of civilian appointments that saw younger officials being elevated to key positions as deputy ministers, deputy provincial governors and royal court advisors.
Tamadar bint Yousef al-Ramah was appointed the deputy minister of labour and social development, a rare senior government post for a woman in the conservative kingdom.
Prince Turki bin Talal, the brother of billionaire Prince Al-Waleed bin Talal, was appointed deputy governor of the southern Assir Province.
Prince Al-Waleed, dubbed the Warren Buffett of Saudi Arabia, was among princes, ministers and tycoons detained in Riyadh's luxury Ritz-Carlton hotel in an unprecedented crackdown on what the government calls elite corruption.
The Ritz-Carlton reopened for business on February 11, more than three months after becoming a gilded prison for Saudi elites.
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