By Laura Mills

MOSCOW -- Russian President Vladimir Putin dismissed Economy Minister Alexey Ulyukaev for "breach of trust," the Kremlin said on Tuesday, after a Moscow court placed the official under house arrest on bribery charges.

Russia's Investigative Committee said Mr. Ulyukaev had been detained late Monday and was accused of accepting a bribe of $2 million for the privatization of a midsize oil company in October. His arrest was the highest-profile detention of a sitting government official since Mr. Putin came to power in 2000.

Prosecutors asked for house arrest, considering health and family considerations. They said that the evidence against Mr. Ulyukaev, who they said was found with the $2 million, was substantive, and that he posed a flight risk on coming business trips abroad.

During the court hearing, Mr. Ulyukaev denied the charges but said he was ready to cooperate with the investigation.

"I am determined to cooperate as much as possible with the investigation, it is in my objective interests because I want to save my reputation and my good name," Mr. Ulyukaev said.

Kremlin spokesman Dmitry Peskov told state news agencies that the president was aware of the arrest and had been "informed at the moment the operation began." He wouldn't specify when the president had become involved, saying only that it was "a certain, significant amount of time."

"This is a very serious accusation, one which demands serious evidence," he said. "In any case, it can only be determined by the court."

The 60-year-old Mr. Ulyukaev is perceived as one of the more liberal voices in Russia's government. He served in the finance ministry and in Russia's central bank before becoming economy minister in 2013.

While Russia's security organs have opened criminal investigations and occasionally arrested high-profile businessmen and senior officials under Mr. Putin's tenure, detaining a sitting minister -- and the president's personal involvement in the case -- is unprecedented.

The Investigative Committee said a criminal investigation had been opened against Mr. Ulyukaev for bribery on a major scale, a charge that carries a penalty of up to 15 years in prison.

The Investigative Committee alleged that Mr. Ulyukaev had accepted the bribe in exchange for giving a green light for state oil producer PAO Rosneft to buy just over 50% of a smaller producer, PAO Bashneft.

"The accused issued threats that, using the powers of his office, [he could] create further obstacles for the company," the committee claimed. It saidRosneft representatives had informed law-enforcement officials of Mr. Ulyukaev's actions.

Russian state media reported that law-enforcement officials said the minister's phones had been tapped and his communication monitored. The officials said Mr. Ulyukaev had been under investigation for more than a year.

Russia has struggled to plug budget holes as low oil prices and Western sanctions have buffeted the economy, which shrank 3.7% last year. The government announced a series of high-profile privatization deals in an effort to rein in the widening budget deficit.

But the sale of a stake in Bashneft, a midsize oil producer that was returned to the state after its owner was put under house arrest in 2014, proved controversial: The deal was initially postponed after officials bickered publicly over whether Rosneft, a state-controlled company, should be allowed to participate in the deal.

Mr. Ulyukaev spoke out against the deal in August, saying privatization of one state company by another was inappropriate. In early September, however, he said Rosneft would be allowed to participate.

Rosneft eventually bought the shares for 330 billion rubles ($5 billion), higher than the government's initial valuation of the company at 306 billion rubles.

A Rosneft spokesman declined to comment on the Investigative Committee's actions, but said the stake in Bashneft "was acquired in accordance with Russian law."

The Investigative Committee said there was no wrongdoing by Rosneft "and that the legality of the sale of Bashneft to Rosneft is not being disputed by anyone and is not a subject of the investigation."

Gleb Pavlovsky, an analyst and former political adviser to the president, questioned why the investigation was focused solely on Mr. Ulyukaev, given that the president had signed off on the high-profile Bashneft sale.

"Perhaps the Kremlin hasdecided that the country is in a crisis and needs new decisions, so they decided to arrest a strong [government] manager like Ulyukaev," he said.

A spokeswoman for the Ministry of Economy couldn't be reached for comment.

Russian markets were mixed at the end of the day, with the ruble-traded Micex index down 0.24% and the dollar-traded RTS index up 2.1%.

--Amie Ferris-Rotman contributed to this article.

Write to Laura Mills at Laura.Mills@wsj.com

(END) Dow Jones Newswires

November 15, 2016 13:25 ET (18:25 GMT)

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