US President Donald Trump has fired Secretary of State Rex Tillerson in a dramatic White House shake-up, replacing him with CIA director Mike Pompeo.

Mr Trump has also nominated Gina Haspel to replace Mr Pompeo and become the first woman director of the CIA.

The move represents the biggest shake-up of the Trump cabinet so far and had been expected since last October when reports surfaced about a falling out between Mr Trump and Mr Tillerson, 65, who left his position as chief executive of Exxon Mobil to join the administration.

Mr Tillerson was formally informed of the decision by Mr Trump in a call from Air Force One. The call came after the President announced the firing via Twitter.

Speaking Wednesday morning (AEDT), Mr Tillerson said he would relinquish his duties as of March 31 and would work to ensure a smooth transition in the meantime.

“I received a call today from the President of the United States a little after noontime from Air Force One, and I’ve spoken to Chief of Staff Kelly,” he said.

“Clarity in the days ahead what is most important is to ensure an orderly and smooth transition.”

Mr Trump earlier on Twitter wrote: “Mike Pompeo, Director of the CIA, will become our new Secretary of State. He will do a fantastic job! Thank you to Rex Tillerson for his service! Gina Haspel will become the new Director of the CIA, and the first woman so chosen. Congratulations to all!”

Mike Pompeo, Director of the CIA, will become our new Secretary of State. He will do a fantastic job! Thank you to Rex Tillerson for his service! Gina Haspel will become the new Director of the CIA, and the first woman so chosen. Congratulations to all!

— Donald J. Trump (@realDonaldTrump) March 13, 2018

The President publicly undercut Mr Tillerson’s diplomatic initiatives numerous times, including on Monday when his comments about Russia appeared to be at odds with those of the White House.

Mr Tillerson also appeared out of the loop last week when Mr Trump announced he would meet with North Korea’s leader and become the first sitting US president to do so. 

Former CIA boss Mike Pompeo will now be central to the North Korea talks. Photo: Getty

In October, NBC news reported that Mr Tillerson called the President a “moron,” something Mr Tillerson never actually denied.

On Tuesday Mr Trump cited differing opinions on policy and a “chemistry” problem between him and Tillerson for his decision.

Speaking to reporters on the White House lawn Mr Trump said: “It was a different mindset, a different thinking. We got along actually quite well, but we disagreed on things.

“When you look at the Iran deal, I think it’s terrible. I guess he thought it was OK.

“I wanted to either break it or do something and he felt a little bit differently, so we were not really thinking the same.

“Rex is a good man, I like him a lot and I wish him good things, but I think he will be happier now.”

Australian foreign minister Julie Bishop said she had worked productively with Mr Tillerson. but the change would not disrupt the relationship between the two countries.

“I believe we will have a very positive working relationship with Mike Pompeo,” Ms Bishop said.

“The United States is a significant and powerful partner with many countries around the world,” she said. “The connections between the United States and the Australian government are very deep and enduring … the connections will continue.”

-with AAP