Putin's departure from United Russia marks a dramatic change in fortunes for a group that had dominated the country's politics for most of his 2000-08 presidency but is now the focus of street protests and corruption complaints.
The former KGB spy chaired United Russia while serving as Medvedev's prime minister for the past four years but was never an actual card-carrying member of the group.
Yet its name became intrinsically linked with Putin's -- still Russia's most popular figure whose ratings are roughly double those of the party itself -- and its future under the less politically dynamic Medvedev appears in peril.
Putin said it seemed perfectly logical for Medvedev to head United Russia when the two old allies seal their job-swap agreement after his May 7 Kremlin inauguration.
"We have developed a political tradition under which the president remains a non-partisan figure," news agencies quoted Putin as telling United Russia leaders.
"The constitution does not bar him from being a member of some party or other. But according to its spirit, the president is really a consolidating figure for all political forces," Putin said.
United Russia held two-thirds control of parliament and dominated most regional legislatures across the vast country for the past four years -- a position that made it impervious to criticism from other corners.
The group passed Kremlin-sponsored legislation without debate and took pride in implementing Putin's vision of a centrally controlled country in which stability was favoured over political pluralism.
But voters have become increasingly disenchanted with a force that was comprised mostly of unelected bureaucrats who were seen enjoying lavish lifestyles while doing little to hide their side business activities.
United Russia became known as "the party of crooks and thieves" among protesters and once even held a formal meeting aimed at deflecting such claims.
Its ability to cling to a majority in fraud-tainted December parliamentary elections sparked street demonstrations that only abated with Putin's thumping March 4 election win.
Yet Putin had by December already taken steps to distance himself from United Russia by forming a new coalition called the All-Russia People's Front.
Putin said he expected United Russia to remain "a centrist, conservative force" that held close consultations with Medvedev's cabinet.
But Medvedev adopted a completely different and far more liberal tone in one of his last major addresses as president earlier in the afternoon.
Medvedev told a Kremlin meeting that he viewed the "development of civil and economic freedoms (as) my primary objective" and vowed to back efforts to build new and more representative political parties.
"Democracy is no longer a swear word," Medvedev said in an address played live across the nation.
"I am certain that political diversity and the direct inclusion of people in the political process will not lead to a return to chaos at this stage in our history," Medvedev said in reference to Russia's early post-Soviet period.