Reports also said that Putin had asked Medvedev and his ministers to function as a caretaker government till a new one is formed and that Medvedev had a meeting with Putin before submitting his resignation.
"The president would be obliged to appoint them [the parliament's choices for prime minister and other cabinet posts] to these jobs", Mr. Putin said. "And so, I think it just shows that Putin is thinking about the democratisation of political power in Russia and the political system in Russia", Pushkov says.
Putin thanked Medvedev, a longtime ally, for what he had achieved, adding, perhaps with an eye on complaints about Russia's listless economy: "Not everything worked out of course - but then, nothing ever works out totally".
President Putin's fourth term in office is due to end in 2024, and under the existing constitution he would not be entitled to another term. After Medvedev was elected president in 2008, Putin served as his prime minister and the two swapped positions when Putin was re-elected president in 2012. Speaking Wednesday before top officials and lawmakers, Putin said that the authorities need to do more to encourage new births and support young families.
Mishustin met Putin in the Kremlin where the Russian president "suggested to him that he take the post of the head of government" which he accepted, the Kremlin said.
In a statement carried by the state-backed TASS News Agency, Medvedev said his government should step down in the wake of Putin's proposals to change the constitution. According to The Guardian, Medvedev, after stepping down as prime minister, was appointed to a new position as deputy chairman of Russia's Security Council.
Other candidates for the Prime Minister position included Moscow Mayor Sergei Sobyanin, who is credited with breathing new life into the capital.
But leading Kremlin critic Alexei Navalny said he expected any referendum to be "fraudulent crap" and that Putin's goal remained to be "sole leader for life".
"By transferring more power to the Duma, Putin is signalling his belief that the Russian political class can be trusted to continue the work that he himself has undertaken to make Russia's national interests the primary focus of all government policies, both domestic and foreign, for the foreseeable future", Quinn underscores.
Indeed, a separate, proposed reform by Putin - that anyone running for president must live in Russia for at least 25 years - suggested the Russian leader had an eye on potential competitors for the Kremlin seat in 2024.
In addition to the constitutional changes, Putin's annual address included nationalist praise for Russia's military might, which supposedly includes super-weapons beyond the technological capability of the United States.
One widely speculated option is that Putin could become head of a reformed council as a way for him to remain a supreme leader figure, following a model employed by China's Deng Xiaoping.
Much of the speech, which lasted about 70 minutes, focused on promises of concrete support for families, with Putin saying Russian Federation continues to face a "very difficult" demographic crisis.