Georgian President Mikheil Saakashvili dismissed Prime Minister Lado Gurgenidze on Monday in a government shake-up following his country`s war with Russia in August, according to AFP.

The announcement came as key former ally Nino Burjanadze announced plans to form a political party to challenge Saakashvili, who has faced attacks from the opposition for his handling of the conflict.

Gurgenidze, who became prime minister last November, will be replaced with Georgia`s ambassador to Turkey, Grigol Mgaloblishvili, Saakashvili said in televised remarks.

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"When I appointed Lado Gurgenidze as prime minister we agreed that he would work for one year and he has done excellent work during this year, he faced extraordinary challenges during his time in office," Saakashvili said.

"I have nominated Grigol Mgaloblishvili as the new prime minister of Georgia and we together will soon present a new cabinet."

The nomination of Mgaloblishvili, who also uses the first name Gega, must now be approved by parliament in what should be a mere formality given Saakashvili`s strong support among lawmakers.

A senior government official, speaking on condition of anonymity, told AFP that other changes in the government are expected.

The cabinet overhaul comes as the government faces increasing criticism of its handling of a war between Georgia and Russia in August over the rebel region of South Ossetia.

Saakashvili launched an offensive on August 7 to retake Russia-backed South Ossetia following a series of clashes in the area during the summer.

Russia responded with a massive military attack and eventually recognised the independence of South Ossetia and another separatist region, Abkhazia.

Burjanadze, who has twice served as interim president, said Monday that she was forming a "clear-cut opposition party" to be called the Democratic Movement - United Georgia in order to face up to "threats."

"Those people who are currently in power are not able to overcome existing threats," she said in a statement.

Burjanadze last week called for early elections, saying Georgia was facing a "grave political crisis" because of "mistakes made by the authorities and inadequate steps" during the conflict with Russia.

She did not specify whether she was calling for presidential or parliamentary elections. Georgia held both presidential and parliamentary elections earlier this year.

Burjanadze, one of the leaders of the 2003 Rose Revolution that brought Saakashvili to power, is considered one of the few politicians in Georgia with the clout and experience to challenge Saakashvili.

Gurgenidze became prime minister last November after his predecessor, Zurab Noghaideli, was dismissed following clashes between security forces and opposition supporters on the streets of Tbilisi.

Some opposition groups have called for renewed street protests on November 7, the anniversary of the clashes.

Gurgenidze, a former commercial bank chief, was seen as a key figure in reforming Georgia`s economy and attracting foreign investment. Saakashvili said he would be appointed head of a government council on investments and finance.

He led Georgia`s efforts to attract Western aid following the war with Russia, which was ended by a European Union-brokered ceasefire.