• Trade Minister Tim Groser will leave Parliament before Christmas to become New Zealand's ambassador in Washington.
• Paula Bennett picks up the Climate Change Issues portfolio from Mr Groser.
• Todd McClay becomes Minister of Trade. He retains his responsibilities for State Owned Enterprises, while handing over the Revenue portfolio to Michael Woodhouse.
• Having picked up the Revenue portfolio, Michael Woodhouse hands Police to Judith Collins.
• Sam Lotu-Iiga picks up the Local Government portfolio from Paula Bennett, while handing Corrections to Ms Collins.
Trade Minister Tim Groser will leave Parliament before Christmas and become New Zealand's ambassador in Washington early next year, Prime Minister John Key has confirmed.
Mr Groser's climate change portfolio would be given to Paula Bennett, and his trade portfolio would go to Todd McClay, Mr Key announced as part of a reshuffle of the National caucus.
It was thought that Mr Groser could remain in Parliament until the Trans Pacific Partnership was signed. But he would instead leave once climate change talks had wrapped up in Paris.
He would be replaced in Parliament by Maureen Pugh from the West Coast.
"I want to congratulate Tim Groser on his appointment as Ambassador to Washington. His experience in the trade portfolio, including the successful conclusion of the TPP negotiations, makes Mr Groser an ideal person to represent our country's interests in Washington," Mr Key said.
"On a personal note, Tim will be very much missed by his colleagues in Cabinet and Caucus. Tim has been a valued colleague since his election to Parliament in 2005 and has made a significant contribution to New Zealand's interests.
As revealed earlier today, Judith Collins will return to Cabinet and get her corrections and police portfolios back.
"I am pleased to welcome Judith Collins back to Cabinet. Judith has been a competent Minister, and will quickly be able to pick up the Police and Corrections portfolios that she has successfully held before."
Ms Collins will be sworn in on 14 December.
Michael Woodhouse, having lost the Police portfolio to Ms Collins, will take the Revenue role from Mr McClay.
Corrections Minister Sam Lotu-Iiga would be given the Local Government portfolio, which is held by Ms Bennett.
The Corrections portfolio was a "natural fit" for Mrs Collins, Mr Key said, and giving it to her did not necessarily reflect on Mr Lotu-Iiga's performance.
The Prime Minister also wanted the corrections and police portfolios to be held by the same minister, as in the past.
Mr Key said she had been "completely cleared" by an inquiry which investigated whether she had undermined the head of the Serious Fraud Office.
"She has my absolute confidence," he said.
"I think she will do a very good job as a minister."
Mr Key said there was a long-standing practice where people who were cleared were returned to Cabinet.
Asked whether he had promoted her because she was causing him trouble from the backbenches, he said: "She felt very strongly she had absolutely done nothing wrong...over the course of the last 12 months.
"I don't think you can point to areas where she has been overly critical of the Government."
Now that she has returned to Cabinet, Mrs Collins will have to give up a car sponsorship deal she has with a Auckland dealership, as well as her column in the Sunday Star Times and her appearances on the Paul Henry Show.
Mr Key also revealed that he offered Act Party leader David Seymour the positions of Minister for Regulatory Reform and Associate Minister of Education, but Mr Seymour declined.
Mr Seymour told the Prime Minister he wanted to see through his private member's bill which would legalise voluntary euthanasia.
He also wanted to focus on rebuilding the Act Party and on his duties as MP for Epsom.
"I respect his decision and look forward to continuing to work closely with him in his current roles," Mr Key said.
Mr Key said he considered giving the Climate Change role to Simon Bridges but this could have created some conflicts with his Energy portfolio.
He said Ms Bennett had the "political nous" and "dexterity" to lead a major review of the Emissions Trading Scheme.
The Prime Minister also confirmed that there were no questions marks over Foreign Affairs Minister Murray McCully's return to Parliament.
Mr McCully has been on leave after undergoing surgery.
Mr Key said the minister needed a period of recovery because he had a punishing travel schedule next year.
Collins responsible for 'Serco circus' - Davis
Opposition MPs reacted negatively to Mrs Collins' appointment this afternoon.
Labour's corrections spokesman Kelvin Davis said she was responsible for the "Serco circus" at Mt Eden Correctional Facility and was now "coming back for seconds".
"Collins set the circus scene and Sam failed to perform," Mr Davis said.
"He never came to grips with his portfolio and failed to find a solution to the never-ending problems that included fight-clubs, a near-riot, allegations of corruption and a suspicious death."
Mr Key said Ms Collins faced "substantial challenges" in the Corrections role but she had a "fair bit of experience".
He reiterated that National was committed to private provision of services, despite the problems with Serco.
New Zealand First leader Winston Peters said the reappointment of Mrs Collins showed that National was "struggling".