Abstract: The present invention is directed to an improved "on-demand" power transfer system of the type having a transfer mechanism incorporated into the driveline of a four-wheel drive vehicle. The transfer mechanism is arranged to deliver drive torque to the driven wheels so as to establish a two-wheel drive mode of operation. In addition, the transfer mechanism is equipped with a clutch assembly for selectively delivering drive torque to the non-driven wheels for establishing a four-wheel drive mode of operation. The transfer mechanism is further equipped with a rotary actuator mechanism for actuating the clutch assembly. The rotary actuator mechanism is preferably mounted directly to the transfer mechanism to substantially minimize the packaging requirements associated with the on-demand power transfer system while concomitantly enhancing in-service reliability and allowing pre-assembly of the transfer mechanism prior to final installation into the vehicle driveline.