By Agence France-Presse
Moon has driven a rapid diplomatic rapprochement with nuclear-armed North Korea, but defence minister Song Young-moo came under fire for mishandling a controversy over a defence intelligence unit.
In March, documents emerged detailing military plans to impose martial law against protesters demanding the ouster of Moon's predecessor Park Geun-hye last year, but Song failed to report them to the presidential Blue House.
Moon named Joint Chiefs of Staff chairman and air force general Jeong Kyeong-doo to replace him.
It is normal for South Korean defence ministers to be former top military officers -- Song was previously an admiral.
Moon's popularity rating soared to 83 percent after his Panmunjom summit with the North's leader Kim Jong Un in April.
It has since fallen to a record low of 56 percent in a Realmeter survey last week amid mounting concerns over the economy.
Moon also named new ministers for education, industry, labour and gender equality in Thursday's reshuffle.