Keir Starmer has appointed Rachel Reeves as shadow chancellor in a wide-ranging reshuffle designed to get the Labour party back on the front foot after disappointing local election results and a weekend of bitter infighting.

Anneliese Dodds was removed as shadow chancellor in the shake-up of Starmer’s top team after just over a year in the post. She was moved into the job of party chair and head of Labour’s policy review.

Reeves, who will take on chancellor Rishi Sunak at the despatch box, is a former Bank of England official who served in Ed Miliband’s shadow cabinet from 2010 to 2015. However, she refused to work for his leftwing successor Jeremy Corbyn.

She is seen as a bête noire for many on the left after taking a firm stance on benefit claimants when she was shadow work and pensions secretary. Yet in 2018 she called for more than £20bn of annual wealth taxes when the Corbyn leadership was wary of a such a move.

The reshuffle came late on Sunday evening, 24 hours after Starmer had plunged his party into turmoil by sacking Angela Rayner as party chair.

The party had been defeated in the Hartlepool by-election, shed 326 council seats, lost control of eight councils and failed to win the mayoralties in Tees Valley and the West Midlands, prompting accusations that the leader was trying to pass the buck for the weak set of results.

The demotion of Rayner prompted a weekend of conflict within Britain’s main opposition party which overshadowed some more positive electoral results on Saturday in cities such as Manchester, London and Bristol. Amid widespread criticism, allies of Starmer accused Rayner of precipitating the public row by revealing the pair’s private talks.

Rayner has moved to become shadow Cabinet Office minister, where she will take on the Tory incumbent Michael Gove.

She will also take on a new role as “shadow secretary of state for the future of work” where she will champion unions’ demands for higher wages and better jobs, and oppose the privatisation of public services.

But the bad blood between Starmer and Rayner, who is the elected deputy leader of the party, lingered as allies said she felt a “deep sense of betrayal” over the dismissal on Saturday night.

One Labour insider said: “Who would want to be national campaign co-ordinator in name only with no power when you’re just made the scapegoat for the failures of Keir’s team?”

A supporter of Rayner said: “On Friday, Keir couldn’t answer a simple question about what Labour’s vision is, what our offer is and how we will win back the voters in our heartland seats. Angela can answer that question.”

Allies of Starmer poured cold water on claims by the Rayner camp that she would maintain control over party matters.

Meanwhile, Alan Campbell was promoted to chief whip with the departure of 70-year-old Nick Brown, a veteran of the Labour whips’ office.

The rest of the shadow cabinet was left largely unchanged, although Starmer did give Lucy Powell the housing brief, replacing Thangam Debbonaire who becomes shadow leader of the Commons. Wes Streeting, a high-flying Blairite MP, joined the shadow cabinet as shadow secretary for child poverty.

Deborah Mattinson, who founded the polling firm Britain Thinks, is set to become Labour’s new head of strategy. Author of a book called Beyond the Red Wall, she was previously a pollster for former Labour prime minister Gordon Brown.

Starmer issued a statement saying that Labour would “embrace the demand for change” across the country with a relentless focus on public priorities by his “refreshed and renewed team”.

“In the last 24 hours we have seen fantastic results for Labour Metro mayors, as well as the Labour government in Wales under Mark Drakeford,” he said. “They have shown the difference Labour can make in power, standing up for their communities.”