The big surprise in the reshuffle were the forced resignations of former Housing Minister Phil Heatley and former Conservation Minister Kate Wilkinson both from the cabinet to the backbench.
"In asking for their resignations, I made the judgment it was time for fresh energy and ideas and it was timely for other members of what is a talented caucus of 59 to be given an opportunity," Mr Key told reporters at Parliament.
"As time goes on it is my view that the Government must from time to time renew itself, bringing in fresh energy and new thinking as well as looking to make portfolio changes where they make sense in terms of achieving its priorities."
He spoke to Kate Wilkinson last night and Phil Heatley only this morning.
He said they had made a great contribution as ministers but there was a need for National to refresh and he had had a commitment from them that they would remain ''team players'' on the backbench.
"For National it is very important we have constant renewal, that there are fresh faces coming through."
Kate Wilkinson resigned from the Labour portfolio last year in the wake of the Pike River Commission of Inquiry report but Mr Key said her demotion had had nothing to do with that.
"Irrelevant of Pike River I still would have replaced her as a minister at the start of this year."
Both MPs say they will now focus on their electorates after losing their portfolios.
Ms Wilkinson's four years as a minister were marred by a series of controversies including the proposal to mine on schedule four conservation land and the subsequent backdown on that policy, as well as the Pike River disaster.
But while he failed to shine brightly in his portfolios, including housing where Labour has increasingly had the Government on the back foot, Mr Heatley's time as a minister has been relatively uneventful apart from his resignation and subsequent reinstatement over a bottle of wine which appeared on his ministerial credit card statement.
This afternoon he told the Herald he was disappointed with his demotion, "but I accept the decision".
"John's got to refresh and that's what he's done."
Mr Heatley said he'd had a "good run" with four years "in some pretty meaty portfolios".
Highlights of his ministerial career included reform of the fisheries and the aquaculture sectors while Fisheries Minister and the changes to the Crown Minerals Act which are currently being considered by Parliament.
"So I've been busy beaver and now I'm going to be focused on my electorate."
Asked whether he harboured any hopes of eventually returning to Cabinet, he said he hadn't given that prospect much thought.
Neither had he given any thought to quitting politics altogether.
"No, no, I love being MP for Whangarei and I've still got plenty of energy left and will be doing that for a while yet."
Ms Wilkinson appeared to be more bruised by her dumping, refusing to talk to the media and instead issuing a short statement.
"Naturally, I am disappointed by today's news but I support the Prime Minister in his choice of a new Cabinet."
Ms Wilkinson said she was proud of her contribution to Cabinet over the last four years.
"I now intend on putting all my energy into continuing to serve the people of Waimakariri as their local MP. Waimakariri has some significant challenges, particularly following the earthquakes, and I am committed to doing what I can to help steer the electorate through these challenging times."
Kaye's star rises
Nikki Kaye had been fast-tracked to cabinet, without a spell as minister outside which is more usual for promotions in mid-term reshuffles.
Mr Key said her work on the committee had been excellent and he had asked her to take special responsibility for digital literacy matters.
"She is a very bright young woman and she has chaired the education select committee very well but [her appointment] also speaks a bit to where I want to take education."
It was important for schools to reflect what was necessary for the future and that was digital literacy - "making sure that we've got those computers and the way that we work with technology deeply embedded in our schools, whether it's more iPads or the way we communicate with each other."
He said Nikki Kaye would bring a younger person's perspective to the portfolio and was someone with a deep interest in education and would give support to Education Minister Hekia Parata.
"Equally I expect Hekia to be focused on issues like under-performing children, schools that are failing, Christchurch and those issues that need to be resolved by the minister."
Senior Minister Steven Joyce has been given responsibility for the Novopay IT debacle, which was previously overseen by Craig Foss and the latter has been relieved of his Associate Education portfolio but has been given Consumer Affairs, previously held by Simon Bridges.
As expected Mr Key has earmarked David Carter as the new Speaker to take over from Lockwood Smith when he resigns later this month to become the High Commissioner in London.
The changes will take effect from January 31.
Nathan Guy will take over Mr Carter's Primary Industries portfolio while Michael Woodhouse takes over Mr Guy's current responsibilities as Immigration and Veterans' Affairs.
National will elect a new chief whip at it next caucus meeting on January 29.
Mr Woodhouse, a Dunedin based list MP, has been National's chief whip since the 2011 election. Talking to the NZ Herald he noted other MPs who were elected to Parliament for the first time in 2008 such as Simon Bridges and Amy Adams were making their way through the ranks in the latest and previous reshuffles.
"It's nice to be joining that group".
He was looking forward to continuing Nathan Guy's work on strategies to align immigration policy with other areas of the Government's agenda such as employment market objectives and the Canterbury rebuild.
In the Veterans Affairs portfolio key tasks included planning for the centenary of the Galipoli landings and also further work on adopting recent Law Commission recommendations on veterans' entitlements.
He was disappointed to see Ms Wilkinson and Mr Heatley demoted.
"I've worked closely with both of them and consider them good friends. They'll be disappointed but philosophical at their heart they are true blue National people and they'll understand."
"People are a bit surprised that the reshuffle was as significant as it was but it certainly goes to a longer term plan as we deliver the Govenrment's agenda and prepare for 2014."
Mr Bridges, the MP for Tauranga, said he was looking forward to the additional responsibility of his new portfolios and to the oportunity to bring "new thinking and enthusiasm to them".
"As a lawyer by training and profession I bring that experience and expertise to the roles. I like to think I'm a quick learner who will pick up the issues in the portfolios reasonably speedily but I think the're both portfolios with large complexities and opportunities."
He said Mr Key had done well with the reshuffle.
"Obviously it's a chance that the Prime Minister's gone with to refresh and get new ideas and deliver for New Zealanders."
Cabinet
John Key: Prime Minister, Minister of Tourism, Minister Responsible for Ministerial Services, Minister in Charge of the NZ Security, Intelligence Service
Minister Responsible for the GCSB.
Bill English: Deputy Prime Minister, Minister of Finance.
Gerry Brownlee: Minister for Canterbury Earthquake Recovery, Minister of Transport, Leader of the House, Minister Responsible for the Earthquake, Commission.
Steven Joyce: Minister for Economic Development, Minister of Science and Innovation, Minister for Tertiary Education, Skills and Employment, Associate Minister of Finance.
Judith Collins: Minister of Justice, Minister for ACC, Minister for Ethnic Affairs.
Tony Ryall: Minister of Health, Minister for State Owned Enterprises.
Hekia Parata: Minister of Education, Minister of Pacific Island Affairs.
Christopher Finlayson: Attorney-General, Minister for Treaty of Waitangi Negotiations, Minister for Arts, Culture and Heritage, Associate Minister of Maori Affairs.
Paula Bennett: Minister for Social Development Associate Minister of Housing.
Dr Jonathan Coleman: Minister of Defence, Minister of State Services, Associate Minister of Finance.
Murray McCully: Minister of Foreign Affairs, Minister for Sport and Recreation.
Anne Tolley: Minister of Police, Minister of Corrections, Deputy Leader of the House.
Dr Nick Smith: Minister of Conservation, Minister of Housing.
Tim Groser: Minister of Trade, Minister for Climate Change Issues, Associate Minister of Foreign Affairs.
Amy Adams: Minister for the Environment, Minister for Communications and Information Technology, Associate Minister for Canterbury, Earthquake Recovery.
Nathan Guy: Minister for Primary Industries, Minister for Racing.
Craig Foss: Minister of Commerce, Minister of Consumer Affairs, Minister of Broadcasting, Associate Minister for ACC.
Chris Tremain: Minister of Internal Affairs, Minister of Local Government, Associate Minister of Tourism.
Simon Bridges: Minister of Energy and Resources, Minister of Labour, Associate Minister for Climate Change Issues.
Nikki Kaye: Minister for Food Safety, Minister of Civil Defence, Minister of Youth Affairs, Associate Minister of Education, Associate Minister of Immigration.
Ministers outside of Cabinet
Maurice Williamson: Minister for Building and Construction, Minister of Customs, Minister for Land Information, Minister of Statistics.
Jo Goodhew: Minister for the Community and Voluntary Sector, Minister for Senior Citizens, Minister of Women's Affairs, Associate Minister of Health, Associate Minister for Primary Industries.
Chester Borrows: Minister for Courts, Associate Minister of Justice, Associate Minister for Social Development.
Michael Woodhouse: Minister of Immigration, Minister of Veterans' Affairs, Associate Minister of Transport.
Support party ministers
Peter Dunne: Minister of Revenue, Associate Minister of Conservation, Associate Minister of Health.
John Banks: Minister for Regulatory Reform, Minister for Small Business, Associate Minister of Commerce, Associate Minister of Education
Dr Pita Sharples: Minister of Maori Affairs, Associate Minister of Corrections, Associate Minister of Education.
Tariana Turia: Minister for Whanau Ora, Minister for Disability Issues, Associate Minister of Health, Associate Minister of Housing, Associate Minister for Social Development, Associate Minister for Tertiary, Education, Skills and Employment.
