One of the policies of the Khans towards rogue tribes was to relocate them forcibly nearer to Khiva where it was easier to keep an eye on them. However, this policy was not always successful. Rakhim Kuli Khan had hardly ascended the throne when a major revolt broke out amongst the Jamshidi Persians who had been deported to the banks of the Oxus by his father Allah Kuli. The nearby Sarik Turkomans, who covered a large area as far south as Merv, also began to revolt and the Khan sent his younger brother, Mohammed Rakhim Inaq out against them.

Fearing for the safety of Khiva, the Khan ordered 20,000 Persian slaves and, reputedly, a quarter of the population of Khiva, to build six kilometers of crenellated walls and ten gates. The walls for the Dichan Kala were constructed in a mere 30 days of frantic labour. Before his unexpected death, the Khan also managed to construct a breathtaking madrassah which was named after him. This was later demolished during the Stalinist purges.