The dismissal of a local mayor must be proposed by a lawmaker or the governor of a region, and the approval of at least two thirds of local MPs is required, according to the amendments to the law on local self-government.
Mayors in Russia earlier could be dismissed after a referendum or as a result of criminal investigation against them.
The move is part of the initiatives Medvedev proposed in his state-of-the nation address last November, which oblige the prime minister, regional and municipal authorities to report to legislatures and give regional parliaments the right to nominate candidates for governor.
Medvedev's proposals also included a cut in a threshold for parties in parliamentary elections from 7% to 5%, a financial deposit requirement at elections, and giving a seat in legislatures for small parties that failed to make it into legislative assemblies. These and other proposals have been approved by the federal parliament.
Critics, however, said the measures were insufficient, and observers said Medvedev's reform could be described neither as a "thaw" nor as "tightening the screws."