A power tool with a motor, a transmission and a rotary impact mechanism. The transmission receives rotary power from the motor and includes a transmission output member. The rotary impact mechanism has a first spindle, a second spindle, a hammer and an anvil. The second spindle is disposed coaxially with the first spindle and the hammer is drivingly coupled to the second spindle. The power tool also includes a device that selectively couples the first and second spindles with the anvil and the transmission output member. Coupling of the first spindle with the anvil and the transmission output member directly drives the anvil, whereas coupling of the second spindle with the anvil and the transmission output member drives the anvil through the hammer.