Dmitri Medvedev, Russia's president, has ordered cuts of up to 85 per cent in the supply of gas to Belarus after it failed to settle an outstanding gas debt.
"Begin an appropriate procedure," Medvedev told Alexei Miller, the head of Gazprom, the Russian gas giant, in televised remarks in Moscow on Monday.
Gazprom said last week that Belarus owed it $192m in unpaid debts and gas exports would be reduced if the debt was not settled by 0600 GMT on Monday.
"The debt has not been redeemed," Miller said, adding that starting from 1000 on June 21 "a regime of 15 per cent reduction of Russian gas supplies" would be imposed.
The cuts could increase if the debt remains unpaid.
Belarus took immediate steps in an attempt to defuse the crisis, saying it may have to borrow money from the West to pay off the debt.
"Belarus plans to settle its gas debt with Russia within the next two weeks," Vladimir Semashko, first deputy prime minister, said in a statement.
But he added that Russia should also pay Belarus $217m in fees for transiting gas to Europe.
Analysts warned of "a new gas war" after supplies were cut and said the Kremlin move was aimed at punishing the government of Alexander Lukashenko.
The president of Belarus has recently irritated Moscow by dropping his normally dependable loyalty in favour of a quest for closer ties with the European Union.
The flow of Russian gas to Europe via Belarus was not immediately interrupted after the reduction, Belarus' energy ministry said.
Gazprom said earlier this month that Belarus has been paying $150 per 1,000 cubic meters, instead of the $169.20 that the Russian company charged in the first quarter and $184.80 in the second, which created the debt.
Miller said on Monday that Belarus admits having the debt, but "it proposes to pay it with machinery, equipment and a series of other products".
In a humiliating broadside at Lukashenko, Medvedev said he should come up with hard cash, and not goods, to pay the bill.
"Gazprom cannot accept anything towards the payment of the debt, neither pies nor butter not cheese nor pancakes nor other means of payment," Medvedev said.
Russia supplies a quarter of Europe's gas needs and uses Belarus, which borders EU member Poland, as one of two key transit routes of oil and gas to the continent.
Gazprom said the ban would not affect its European customers because it will channel alternative supplies via another pipeline through Ukraine from where most gas flows into Europe.
Relations between Russia and Belarus have soured since they failed to agree unified customs rules and Belarus gave refuge to Kurmanbek Bakiyev, the ousted Kyrgyz president, despite Russia's support for the new Kyrgyz leadership.
Previous pricing disputes with Belarus have led to oil supply cuts, with Poland and Germany being most affected.
A similar standoff halted the much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a cold snap.