JEDDAH, Saudi Arabia Jan 14 (Reuters) - Saudi Arabia's King Abdullah appointed a former diplomat to run its most sensitive region on Monday, naming Prince Saud bin Nayef as governor of oil-producing Eastern Province, scene of protests by the kingdom's Shi'ite Muslim minority.
The appointment gives Prince Saud, who was born in 1956, a senior government job at a moment when the ruling al-Saud family is making a transition towards a younger generation of leaders.
The Eastern Province has seen repeated anti-government demonstrations over the past two years by Shi'ite Muslim protesters calling for more political rights and the release of jailed relatives.
"Prince Mohamad bin Fahad bin Abdulaziz is relieved of his duties as the governor of the Eastern Province, upon his request, and Prince Saud bin Nayef bin Abdulaziz...is appointed governor of the Eastern province," said a Royal Court decree carried by state news agency SPA.
Prince Saud is a son of the late veteran interior minister Crown Prince Nayef, who died in June 2012. He previously served as ambassador to Spain, where he organised a high-profile interfaith dialogue conference pushed by King Abdullah.
Activists in the Eastern Province said it was not clear yet if the change in leadership would have an impact on policy in the region, where much of the country's oil industry is based.
Prince Saud briefly served as deputy governor of the Eastern Province in the 1980s. On his mother's side he is also related to the bin Jiluwi branch of the ruling family which is based in the region.
"It is a significant change. But to my knowledge in the upper echelons of the state, the view of Qatif is very much influenced by security issues," said Tawfiq al-Seif, a leader of the Shi'ite community in Saudi Arabia, referring to the town where most of the protests have taken place.
"We have to wait and see if that will now happen," he said.
Most of the country's Shi'ites live in the Eastern Province and some complain their religious ceremonies are banned or interfered with by Sunni authorities, and that they lack opportunities for work and education. The government denies any discrimination.
Clashes with police have broken out in the past two years, with more than 16 deaths since the protests began in February 2011.
"This governorship is the most difficult one in the kingdom. Whoever occupies this post is going to have a very challenging time," said Joseph Kechichian, a U.S. historian of Saudi Arabia.
He believed that Prince Saudi would try to bring order to the region as the king was not happy about the events there.
"No matter how hard they have tried they have been unable to eliminate the uprising in Qatif and the surrounding villages. Someone fresh and new may be able to come to terms with inevitable problems that will occur in the region."
Analysts closely watch the succession in Saudi Arabia, the world's top oil exporter, where King Abdullah will turn 90 this year and his heir, Crown Prince Salman, will turn 87.
So far all Saudi kings after the death of the country's founder King Abdulaziz in 1953 have been drawn from his nearly 40 sons. However, that generation may soon be exhausted and the ruling al-Saud family will then have to select one of his grandsons to rule.
Prince Saud is the older brother of the current Interior Minister, Prince Mohammed bin Nayef, who is seen by analysts as a potential future king. Other possible candidates include Mecca Governor Prince Khalid al-Faisal and the outgoing Eastern Province governor Prince Mohammed bin Fahd.
"It clearly raises Saud bin Nayef's succession prospects. Being governor of the Eastern Province could be a launching pad. It's a very important job," Robert Lacey, author of Inside the Kingdom, a book on Saudi Arabia, said.