Prime Minister Vladimir Putin yesterday stunned observers by proposing a merger between Russia's Gazprom, the world's largest gas firm, and Ukrainian state gas company Naftogaz.
The surprise plan infuriated the pro-Western opposition in Ukraine in an already tense domestic political situation and risks alarming the European Union, which has warily eyed Russia's gas expansion ambitions.
"I have made a proposal... I propose merging Gazprom and Naftogaz," Mr Putin said following talks in the southern city of Sochi with Ukrainian Prime Minister Mykola Azarov.
Mr Putin's announcement, broadcast on state TV, is the latest move to cement ties between the two countries after Ukraine's new pro-Kremlin President Viktor Yanukovych came to power earlier this year.
Mr Yanukovych's defeated rival in presidential elections, Yulia Tymoshenko, swiftly denounced the plan as part of a wider Russian scheme to steal Ukraine's post-Soviet independence.
"This proposal to merge Gazprom and Naftogaz... could be taken as a joke, if every day an extensive plan to liquidate Ukraine's independence wasn't taking shape before our eyes," she said in a statement. Mr Azarov's aide appeared caught off guard by Mr Putin's announcement, saying the idea had not been discussed in the negotiations with Mr Azarov.
"The idea of a merger between Ukraine's Naftogaz and Gazprom was not discussed during the negotiations with the Russian side," Mr Azarov's spokesman, Vitaly Lukyanenko, told the Interfax news agency.
"Vladimir Putin voiced it in an impromtu fashion," he added. "What can we do... we will launch an impromptu review and assess the concrete proposal."
Gazprom's chief executive officer Alexei Miller said that negotiations on this issue would start immediately after national holidays in Russia due to be marked in the first two weeks of May.
"We are ready to examine the possibility of exchanging assets (of Gazprom and Naftogaz). In essence, this is a question of merging the two companies," said Mr Miller.
Mr Putin's spokesman Dmitry Peskov insisted that the proposal was "more than serious and well thought out."
"The proposal emphasises how far the Russian side is prepared to go on the road to integration with its Ukrainian partners," he told the RIA Novosti news agency.
The deal came 10 days after Ukraine agreed a landmark accord to keep Russia's Black Sea Fleet based in Crimea at least until 2042 in exchange for a 30 per cent discount on Russian gas exports to its neighbour.
Mr Putin also said that export duties would be scrapped on all gas exports to Ukraine.
Naftogaz and Gazprom were at the centre of a gas dispute between Russia and Ukraine in January 2009, which led to gas supplies being turned off to several EU states in the midst of a bitterly cold winter.
A quarter of the gas consumed in the EU comes from Russia, 80 per cent of which passes through Ukraine.
The deal to extend the stay of the Black Sea Fleet has already provoked howls of protest from pro-Western Ukrainian politicians, who accused Mr Yanukovych of selling out Ukraine's sovereignty to Russia.
Deputies also staged an unprecedented protest in the Ukrainian Parliament, throwing eggs at the Speaker and letting off smoke bombs as the agreement was ratified.
Analysts have said Russia is moving quickly to secure its influence over Ukraine after the departure from power of ex-president Viktor Yushchenko whose pro-Western orientation infuriated Moscow.