Vladimir Putin's surprise promise to pardon jailed tycoon Mikhail Khodorkovsky shows the Russian leader no longer fears his old rival or worries that the former billionaire can build an opposition force.

The 50-year-old founder of the now-defunct Yukos oil empire was snatched by federal security forces off his corporate jet in the middle of Siberia at the very height of his powers in October 2003.

Khodorkovsky was not only Russia's richest man and a Western investment community darling but also viewed as a possible Kremlin successor who openly funded parties opposed to Putin's increasingly dominant rule.

"Khodorkovsky's arrest marked a turning point in Russia's development. His release is also an event of a colossal scale," said Maria Lipman of the Carnegie Moscow Centre.

"What Putin's goals are and what the consequences will be is not entirely clear. But this is a signal that Putin no longer views Khodorkovsky as a threat."

Political analyst Stanislav Belkovsky agreed that Putin appears to have undergone a profound personal shift after a decade of treating Khodorkovsky as his sworn and eternal foe.

"Putin has simply stopped fearing Khodorkovsky," said the widely-published analyst.

Belkovsky suggested that Putin may have also been driven by a desire to improve media coverage of February's Winter Olympic Games in Sochi -- an event clouded by Western anger over a new "homosexual propaganda" ban.

"This should radically improve international media coverage in the run-up to the Sochi Games," said Belkovsky.

"But it also shows that Putin is human. He can still change his mind."

'It shows who is boss'

Khodorkovsky's arrest and conviction horrified foreign investors who had just begun testing Russian waters after being painfully stung by a 1998 debt default that reverberated across the West.

Investors saw Khodorkovsky's jailing as a clear case of selective justice because Yukos was simply following the imperfect business rules the Kremlin had imposed for all at the time.

The dismemberment of his empire by state upstarts such as Rosneft with the help of Kremlin-backed judges only added to the impression that Russia was a country where no investment was safe.

But a glimmer of hope appeared to cross Russian trade floors within seconds of the first reports about the tycoon's imminent pardon hitting the Russian news wires.

The Moscow stock market shot up 0.7 percent while esteemed economists such as former finance chief Alexei Kudrin hailed the pardon as a "momentous event".

"This is very good news for the investment climate," self-exiled Russian economist Sergei Guriev told the RIA Novosti news agency.

The former rector of Moscow's New Economic School himself created a stir in May when he fled to Paris out of fear of being prosecuted for helping write a report critical of Khodorkovsky's second conviction.

Others said the pardon showed Putin was feeling more confident after surviving a historic wave of Moscow street protests in the winter of 2011-2012 that preceded his return to a third Kremlin term.

The unrest marked the very first time Putin felt his power challenged since being named the late Boris Yeltsin's presidential successor on New Year's Eve 1999.

"Putin's return to the Kremlin was very difficult," said former ruling party lawmaker Olga Kryshtanovskaya.

"And through carefully-measured steps, he was able to calm the waters -- that is his victory," said the analyst.

"Now he feels like the victor, which is why has suddenly turned into a Father Christmas figure who is handing out presents."

Putin's promise of clemency for Khodorkovsky came one day after parliament approved a Kremlin-drafted amnesty bill that should free the two jailed members of the punk band Pussy Riot while also ending the prosecution of Greenpeace's Arctic Sunrise crew.

Analysts said Putin's decision was made easier by the fact that Russia's opposition has recently rallied around a new generation of leaders who view Khodorkovsky's era of big business with disdain.

Khodorkovsky himself has hinted in open letters written from his jail cell that he will steer clear of Russian politics upon his release.

"This is a proclamation and confirmation of the fact that Putin is this country's boss, that he himself makes the most important decisions," said Carnegie analyst Lipman.