You might want to take a look at section 3.3 of the Android Market Developer Distribution Agreement.
Relevant bits:
You may also choose to distribute Products for free. You may not collect future charges from users for copies of the Products that those users were initially allowed to download for free. This is not intended to prevent distribution of free trial versions of the Product with an “upsell” option to obtain the full version of the Product: Such free trials for Products are encouraged. However, if you want to collect fees after the free trial expires, you must collect all fees for the full version of the Product through the Payment Processor on the Market.
Depending on how you interpret that, you may need to keep a free version available on the market, and have two versions: a free one, and a paid one with more features.
I suppose you could delete the free one then upload the paid one and call it a new "Product", but if you're at all unsure consider talking to a lawyer.