Moscow  - Russia's defence spending will increase 27 per cent in 2009, news agency Interfax quoted Prime Minister Vladimir Putin as saying on Tuesday.

"Nearly 2.4 trillion rubles (94.23 billion dollars) will be allocated for the needs of national defence and security," Putin was quoted as saying. "This is an increase of 27 per cent."

The announcement comes on the heels of Russia's crushing defeat of Georgian forces on the former Soviet satellite's soil last month.

President Dmitry Medvedev said last week that the five-days of fighting in Georgia showed the need for a full-blown modernization of the military and updating of hardware.

Putin hiked the defence budget during his eight-year presidency to match the country's resurgent economic might.

But defence analyst and military brass warn that internal reform and investment in research and development is also needed to stall the army's decline since the collapse of the Soviet Union.

Putin's statement also came as Russian stocks tumbled to more than three year lows owing to the drop in US markets and investor fears. (dpa)