raine's President Viktor Yushchenko looks on during a meeting with energy officials in the control centre of Ukraine's pipeline operator in Kiev December 31, 2005. Russian President Vladimir Putin offered Ukraine a three-month reprieve in a bitter gas price dispute on Saturday, but only gave Kiev until the end of the day to strike a deal. (Photo: Xinhua/REUTERS)

    MOSCOW, Jan. 1 (Xinhuanet) -- Russia said on Sunday it would cut off gas supplies to Ukraine within hours after the neighbor rejected its latest offer on gas deliveries for 2006.

    Gazprom, Russia's state-owned gas monopoly which controls a third of the world's natural gas reserves, said everything was ready for ending supplies to Ukraine at precisely 10:00 a.m. (0700GMT) Sunday.

    "After a meeting with the Russian president, Gazprom's chairmansent a signed contract for gas supply and transit in 2006 to Ukraine's oil and gas company Naftogaz Ukrayiny," which contained the terms set by President Vladimir Putin, Gazprom spokesman Sergei Kupriyanov said.

    "Ukraine has turned our proposal down. It means the plan to cutsupplies from ...10 o'clock is still in force," he added.

    Hours earlier, Putin agreed to a three-month freeze on gas price for Ukraine, ordering Gazprom to supply gas at the current price for the first quarter of 2006 if Ukraine accepts a price hike starting as from the second quarter.

    "We must think about all aspects of relations between Russia and Ukraine," Putin was quoted by the Interfax news agency as saying at a Security Council meeting.

    He said the offer would only stand good until the end of the day, and the Gazprom announcement came shortly after the deadline expired.

    Responding to Putin's offer, Valentin Mondriyevsky, spokesman for Ukrainian Prime Minister Yuri Yekhanurov, said Ukraine is ready to pay market prices for Russian gas but the two sides need to hold talks on the figures.

    With no deal clinched before New Year's Day, Gazprom chairman Alexei Miller and a deputy chairman will issue an order to cut gas flow to Ukraine on Sunday, the Interfax said.

    Ukraine was buying Russian gas for 50 U.S. dollars per 1,000 cubic meters for the past year, but Gazprom has asked Ukraine to pay more than quadruple this price and offered cash payments for the transit of its gas to European clients.

    Ukrainian President Viktor Yushchenko, however, called for a fair price -- 80 dollars per 1,000 cubic meters -- not one "that has the look of political pressure."

    Yushchenko, who took office a year ago, appeared to be bracing for the cut-off, visiting facilities of state gas company Naftogazand telling officials to ensure that they could compensate for missing Russian gas, the Itar-Tass news agency reported.

    Meanwhile, the Ukrainian president's office said that in a telephone conversation with Putin earlier Saturday, Yushchenko emphasized that "it's extremely important that the sides refrain from political or economic pressures. I believe we will reach a compromise."

    Later in the day, Yushchenko also said in televised remarks: "All problems can be solved through a market approach, and, therefore through a price Ukraine can afford."

    But the phone call between Yushchenko and Putin apparently had little effect on the last-minute efforts to resolve the dispute. Their discussion was limited to "a frank exchange of views on the gas question," according to a statement from Yushchenko's office.

    The gas row has also sparked European concerns of a disruption of gas flow as most of its gas supply from Russia is transited through a Ukrainian pipeline.

    Four European Union (EU) states urged Russia and Ukraine to maintain gas supplies to western Europe, Austria said on Saturday. Their letters to Moscow and Kiev warned that a drop in supplies could "lead to not-insignificant problems for natural gas suppliesin Western Europe."

    The European Commission, the executive arm of the EU, has called a special meeting of its gas coordination group for Wednesday to discuss the issue. And in Warsaw, Economy Minister Piotr Wozniak said Poland would feel "the harmful potential effects" within days. Enditem