Vladimir Putin, the Russian president, wants his country to find new export routes to stop its neighbours holding sway over its main source of foreign trade income.

Gazprom regards the new pipeline, which should have half of its 55 billion cubic metre capacity on stream in 2010, as a key strategic project to help achieve that goal.

Alexei Miller, the chief executive of Gazprom, said: "The North European pipeline will significantly increase the reliability and flexibility of gas supplies from Russia."

The route will help Russia to shed its reliance on Ukrainian transit pipes. Moscow and Kiev have a long history of disputes over gas transit; about 80% of Gazprom's supplies to Europe passing through Ukraine. At the moment they are in dispute about next year's prices and transit fees.

Parasites

Ukraine depends heavily on Russian supplies for its key chemicals and steel industries, and it fears that Moscow's leverage will increase with the new pipeline bypassing its territory.

President Putin said last month that the more power Russia's neighbours have over its exports, the more they are tempted to be "parasites".

Poland and the three Baltic States of Latvia, Lithuania and Estonia are also worried about Russia having the power to bypass them and deprive them of gas.

The Baltic states have also raised questions about the environmental impact of laying a pipeline on the sea bed, a dumping ground for cold-war munitions and chemical weapons.

The onshore section of the pipeline will run 917km to the port of Vyborg, close to Russia's second city of St Petersburg, before heading under the sea for the remaining 1200km to Greifswald in Germany.