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UPDATE 2-Egypt changes key government posts for Sisi's second term

* Defence, interior ministers replaced

* Egypt to enact further austerity measures

* Recent price hikes caused rare unrest

* Fight against Islamist insurgency also priority (Adds details, background)

By Ahmed Tolba and Eric Knecht

CAIRO, June 14 (Reuters) - Egypt appointed a new government on Thursday, replacing several key ministers as President Abdel Fattah al-Sisi pushes ahead with tough economic reforms and seeks to improve security.

Cairo, Washington's key regional ally, is set to enact more tough IMF-backed austerity measures in coming years in efforts to bolster investment and create jobs in an economy that was battered by unrest after the 2011 Arab uprisings.

The cabinet, headed by Prime Minister Mustafa Madbouly who was appointed last week following Sisi's virtually unopposed election to a second term in April, includes new ministers of defence, interior, trade, finance and agriculture.

It is the broadest government shake-up since Sisi was first elected in 2014, a year after he overthrew a freely elected Islamist president as chief of the armed forces.

The IMF-driven measures are to include cutting fuel subsidies, a move likely to upset large sections of the population that are already struggling to make ends meet.

Egypt is also trying improve security, with its military battling an Islamic State insurgency in the Sinai Peninsula.

Sisi supporters say the country is safer than it has been for years and hope that economic reforms and greater stability will lure back crucial foreign investment and tourism.

His critics say Sisi is presiding over the worst crackdown on freedoms in Egypt's modern history. Authorities have arrested thousands of opponents, most of them Islamists but also secular rights activists, since Sisi led the popularly-backed ouster of President Mohamed Mursi of the Muslim Brotherhood in 2013.

The new ministers took their oath in front of Sisi at the presidential palace in Cairo in a televised ceremony.

Mohamed Ahmed Zaki, head of the elite Republic Guard which guards the president, became defence minister. He replaced Sedki Sobhi, who as commander in chief of the military had overseen efforts to crush militants in Sinai behind attacks that have killed hundreds of security force personnel and civilians.

The interior ministry went to Mahmoud Tawfik, who had served as chief of the domestic National Security service under Sisi. Magdi Abdel Ghaffar had held the interior post since 2015.

FUEL CUTS EXPECTED

Mohamed Maait, deputy finance minister in the outgoing cabinet, was promoted to minister, replacing Amr El Garhy, who helped to guide economic reforms tied to Egypt's three-year $12 billion International Monetary Fund (IMF) loan.

The IMF programme began in late 2016 with a flotation of Egypt's pound currency, which halved its value, hitting many ordinary Egyptians hard.

The IMF praises the reforms, and economists see hope for a revival of the economy, whose GDP growth has recently improved compared to previous years.

Egypt also hopes to attract more investment in its energy sector and wants to become a natural gas hub for Europe after discoveries of vast stores of offshore gas.

Further reforms expected to take place under the new government, such as fuel subsidy cuts, are likely to anger Egyptians, however.

A sharp increase in fares for Cairo's underground metro system, used by millions of people, caused rare public displays of discontent with impromptu protests outside stations last month. Police arrested several people.

Egypt banned demonstrations in 2013, requiring those wishing to hold protests to obtain interior ministry permission.

Other key cabinet changes include Amr Adl Bayoumi, appointed minister of trade, and Ezz el-Din Abu-Steit as minister of agriculture. A total of 12 ministerial positions changed hands.

Sisi won re-election in April with 97 percent of the vote after a campaign season that saw a top challenger jailed and all other serious contenders pull out.

He led the toppling in 2013 of Mursi, Egypt's first freely-elected president who briefly held power after the 2011 uprisings that toppled veteran autocrat Hosni Mubarak. (Additional reporting by Amina Ismail Writing by Eric Knecht, John Davison; editing by Sami Aboudi and Mark Heinrich)

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