Prime Minister Vladimir Putin on Friday 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," Putin said following talks in the southern city of Sochi with Ukrainian Prime Minister Mykola Azarov.
Putin's announcement, broadcast on state television, 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.
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.
Gazprom's chief executive 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 Miller.
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 days 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 percent discount on Russian gas exports to its neighbour.
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 European Union comes from Russia, 80 percent 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 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.
"Russia's objective is to take control of the Ukrainian pipelines and they will try to do this in any way," said Viktor Chumak of the International Centre for Policy Studies in Kiev.
"This merger will allow them to seal this control," he added.
Gazprom grew out of the former Soviet Union's Gas Industry Ministry and was part-privatised from 1993, though the Russian state retains a controlling stake of 50 percent. Naftogaz is 100 percent owned by the Ukrainian state.
Analysts have said that Ukraine needed the gas discount from Russia to cut its huge budget deficit and meet the International Monetary Fund's conditions for releasing a new loan tranche.
Ukraine was hammered by the global financial crisis and Putin said Russian state bank VTB is ready to offer the country a 500 million dollar (376 million euro) loan to help its crisis-hit economy.