NBC, the struggling network on which Leno has hosted The Tonight Show for 16 years, confirmed the shake-up on Tuesday, announcing the comedian would move from his usual 11.30pm slot to host an hour-long talk show at 10pm.

The 10pm time slot, among television's most lucrative for advertising revenue, is usually reserved for drama series such as ER. The new Leno programme, tentatively titled The Jay Leno Show, will be the first of its type to air five nights a week in a prime-time slot.

Observers say it marks a sea change in NBC's approach to prime-time programming, a break with the traditional model that raises questions about the future of original drama series on network television.

The surprise move comes as General Electric-owned NBC, languishing in the ratings behind its three major rivals, battles a host of challenges including competition from other media and the economic downturn.

Last week, the company shed 500 employees as part of a plan to cut 500 million dollars next year. And on Monday, NBC Universal chief executive Jeff Zucker said the network was looking at reducing the amount of programming it offers to help reduce costs.

Leno addressed news of his move on his Tuesday night show. "A lot of people were shocked," he joked. "They didn't know NBC still had a prime time."

It has long been known the 58-year-old would be retiring from The Tonight Show in 2009 with fellow comedian Conan O'Brien, who currently hosts a late night talk show that follows Leno, due to step into his shoes.

What Leno, who took over from Johnny Carson as host of The Tonight Show and commands the highest ratings of late night hosts, would do next was the subject of much speculation. Rumours he would go to a rival network left NBC officials fearing he would take his viewers with him.

Under the new deal, the comedian is expected to be paid an annual salary close to $30 million.

Although Leno attracts an average 4.8 million viewers, his audience is far below the number that watches popular prime-time sitcoms and dramas. Some predict the comedian will be crushed in the ratings war when up against shows such as Without a Trace and CSI: Miami.

Marc Graboff, NBC Entertainment co-chairman, said the network did not expect Leno to attract many more viewers at 10pm than at present. But he described the topical nature of the new nightly talk show as appealing to advertisers because viewers would be more likely to watch in real time than record the show and fast forward through the commercials.

He also noted what many commentators seized upon - the cost factor. NBC will save millions a week given that five Tonight Shows costs about the same as one episode of a typical prime-time drama.

The new Leno show effectively cuts the number of prime-time hours NBC needs to fill a week from 22 to 17, a change executives said would enable the network to devote more resources to developing and promoting other shows.

But critics said the resulting reduction in scripted programming was bad news for actors, writers and directors as well as viewers and raised questions about whether budget-wary executives would increasingly shelve prime-time dramas in favour of cheaper alternatives.

Tim Goodman, San Francisco Chronicle television columnist, said the change left NBC with only one hour, from 9pm, for the kind of shows viewers preferred at this time of night, "something a little more gritty and adult".

"This Leno-at-10 pm idea is long-term stupid," Goodman wrote. "The only people really loving this idea are the bean counters - which means pretty much anyone in the executive ranks of NBC."

Chuck Barney, writing in the Contra Costa Times, said the move signalled that the network "that gave us cutting-edge 10 pm shows such as Hill Street Blues, St. Elsewhere, ER, Law & Order" was "essentially admitting that it no longer has the resources, the innovative know-how or the brainpower to produce quality late-night dramas."

The network has seen its ratings plunge by 14 per cent since September with new shows such as Knight Rider and My Own Worst Enemy failing to attract big audiences and former hit Heroes shedding viewers.

Newsday columnist Verne Gay, who last week asked whether NBC might be "the General Motors of network TV", described the Leno move as "the clearest sign of the deterioration of prime-time television we've ever seen! Really, it's kind of a throw in the towel move, when you think about it."