Russia has stationed missiles in its Baltic Sea exclave of Kaliningrad, the pro-government newspaper Izvestia reported.
The missiles have been in place "for some time," Izvestia 's source, a high-level Defence Ministry official said on Monday.
At the moment I can't imagine Russia shooting into a NATO country. If this missile upgrade has already taken place,
it's just a show-off, and is intended to scare.
Another unnamed military source said they were deployed about 18 months ago to the area that borders NATO members, Poland and Lithuania.
Izvestia 's report came after Bild , a German newspaper, said that secret satellite images revealed the missiles' placement.
Russia confirmed on Monday that missiles had been deployed to the country's west, but would not disclose the specific location.
Defence ministry spokesman, Igor Konashenkov, assured Russian news agencies that the missiles do not violate international treaties.
The reports have caused concern in both Poland and the Baltic states, which are already wary of Russian military movements.
"It creates unnecessary political tension and suspicions and reduces mutual trust because we don't see reason why Russians would need such weapons here," Artis Pabriks, Latvia's defence minister told the Reuters news agency.
"I think it's just to show who is the boss in the region."
Poland's foreign ministry called the news "worrying" and said it had expected that consultations between NATO and European Union partners would have taken place first.
In 2011 Russia said it might put missiles in its westernmost region in response to a US decision to build an anti-missile shield in Europe.
Russian President Vladimir Putin has said the anti-missile shield prompted him to maintain a strong military and spend $700 billion by 2020 to upgrade the country's defences.
The Iskander missile has a range of about 400 kilometers, which means those in Kaliningrad could reach Poland, Lithuania and Latvia.
But a senior Lithuanian official told Reuters that Russia probably would not take action.
"At the moment I can't imagine Russia shooting into a NATO country. If this missile upgrade has already taken place, it's just a show-off, and is intended to scare," the official said.
Relations between Russia and Europe have been further strained by Ukraine's decision to abandon a trade deal with the EU nearly a month ago in favour of closer ties with Moscow.