Moscow  - Russia and Ukraine settled their contractual dispute over gas supplies early Monday morning, bringing an end to a week-long embargo on transits to gas-starved Europe.

Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko said in a joint televised statement they would sign a new supply contract for 2009 on Monday, immediately freeing gas supplies via Ukrainian pipelines to Europe.

"All natural gas supplies will resume as soon as these documents are signed," Tymoshenko said.

After talks in Moscow that ran late into the night Monday, Putin said Ukraine would be offered a 20 per cent discount on market for Russian gas deliveries, if it agreed to preserve a preferential fee schedule for gas transits to Europe.

Ukraine will switch to market price for gas from 2010, Putin said.

Under the old arrangement, Kiev paid 179.5 dollars for 1,000 cubic metres of gas from Russia, a huge discount on the costs for European customers who have paid 350 dollars for the same quantity.

Putin made no comment on a 614-million-dollar debt Russia claims from Kiev for late payments and which was another contested point leading to its first gas cuts on January 1.

Russia then halted all supplies of gas to Ukraine on January 7, accusing Kiev of siphoning off deliveries to Europe, 80 per cent of which travel through its pipelines. (dpa)