DIMITROVGRAD, Russia (Reuters) - Finance Minister Alexei Kudrin was ousted on Monday in an unusually bitter and public conflict with President Dmitry Medvedev that has exposed deep cracks in unity over Vladimir Putin's plan to return to the Kremlin. Western investors regard Kudrin as a guarantor of financial stability and have said his departure would be a deep blow to Russia's economy, setting back prospects for reforms. "I have resigned. My resignation was accepted," Kudrin told Reuters. Kudrin was left with little option. Medvedev surprised and humiliated him by demanding he quit at a meeting with local officials after the long-serving minister, long a Putin ally, said he would not work under Medvedev if he swaps places with Putin to become prime minister next year. "Such statements appear improper ... and can in no way be justified. Nobody has revoked discipline and subordination," Medvedev said in the Volga city of Dimitrovgrad, looking down from a stage on Kudrin who was sitting in the audience. "If, Alexei Leonidovich, you disagree with the course of the president, there is only one course of action and you know it: to resign ... Naturally, it's necessary to answer here and now: Will you write a resignation letter?" Kudrin, who said on Sunday he differed with Medvedev over economic policy and particularly his decision to increase military spending, looked stunned - although the president cannot fire him directly. "Yes, it is indeed true that I have disagreements with you. I will take a decision on your proposal after consulting with the prime minister (Putin)," he responded. Such bitter exchanges are rarely seen in public in Russia, where political life is usually orchestrated at the highest level and open dissent over policy is unusual. Medvedev and Putin briefly differed over policy on Libya this year but the last open and bitter feud at such a high level was in 2004 when the then prime minister, Mikhail Kasyanov, fell out with Putin, who was president at the time. Many economists had hoped Kudrin, a close ally of Putin since they worked together in the St Petersburg city administration in the 1990s, would not be forced out.