Stephen Barclay will now take the role of Brexit Secretary – hours after Michael Gove turned it down.
Amber Rudd is also returning to Government as Work and Pensions Secretary after she was forced to resign over the Windrush scandal.
Gove's decision to stay in his post as Environment Secretary was a lifeline for Mrs May, who could have been toppled if he had chosen to resign.
IN WITH THE NEW: Theresa May unveiled her latest cabinet reshuffle (Pic: GETTY)
PROMOTION: Stephen Barclay has been given the job of Brexit Secretary (Pic: GETTY)
COMEBACK KID: Amber Rudd has been given a new job after her Windrush resignation (Pic: GETTY)
The Brexiteer minister, who had run for Conservative Party leader after David Cameron resigned 2016, insisted he still has confidence in the PM despite her losing support after the publication of her draft Brexit deal with Brussels.
She has suffered the loss of four ministers and faces mounting speculation that a vote of no confidence in her leadership could be triggered by Tory MPs within days.
Ms Rudd was a prominent Remain campaigner during the referendum and her return to the Cabinet – in place of Brexiteer Esther McVey who resigned on Thursday – will most likely do little to heal rifts in the Party.
Mr Barclay's appointment came after Mr Gove reportedly turned down the post after saying he would only take it if he could renegotiate the EU withdrawal agreement.
Speaking outside his departmental office, Environment Secretary Mr Gove was asked if he had confidence in the Prime Minister and replied: "I absolutely do."
He added: "I am looking forward to continuing to work with all colleagues in Government and in Parliament to get the best future for Britain."
A Downing Street spokeswoman said Mrs May was "very pleased" that Mr Gove will stay on and "continue doing the important work he is doing".
OUT: Dominic Raab, Esther McVey and Shailesh Vara all quit their cabinet roles (Pic: GETTY)
Pro-Remain Brexit rebel Stephen Hammond will replace Mr Barclay at the Department of Health and Social Care, Downing Street said.
The Wimbledon MP was sacked as Conservative vice-chairman in December after backing a rebel amendment calling for Parliament to be guaranteed a meaningful vote on the Brexit deal.
Brexiteer Kwasi Kwarteng will move from the Treasury to replace Suella Braverman, who followed Dominic Raab out of the door on Thursday.
And former tourism minister John Penrose has been made a minister in the Northern Ireland office to replace Shailesh Vara, who also resigned on Thursday.
PLOTTING: Boris Johnson and other Tory Brexiteers have been briefing against the PM (Pic: GETTY)
Brexiteers MPs, including Boris Johnson and Jacob Rees-Mogg, have spent the last few days furiously plotting against the PM.
Just yesterday, bookies were giving odds of 8/1 that BoJo would be the next Prime Minister following predictions the threshold for no-confidence letters would be reached in the next couple of days.
Shortly after her new position was announced, Ms Rudd tweeted: "A great honour. Look forward to getting stuck in."
She also urged fellow MPs to "think again" about sending no-confidence letters, saying: "This is not a time for changing our leader.
"This is a time for pulling together, for making sure we remember who we are here to serve, who we are here to help: that's the whole of the country.
"I worry sometimes colleagues are too concerned about the Westminster bubble rather than keeping their eye on what our job is – to serve people."