Putin was speaking at a press conference after a dinner meeting at the end of an informal EU summit, in Lahti, southern Finland, at which he was very much the focus.

EU nations attempted to put up a united front on the energy issue, where they have so often treated Moscow on an individual basis. They were seeking assurances from Putin of a secure energy supply and a more open energy market.

On these issues diplomats voiced some satisfaction, but their attempt to persuade Putin to bring down the tension with neighboring Georgia failed spectacularly.

"The issue does not lie between Russia and Georgia, the issue is between Georgia and South Ossetia and Abkhazia," Putin said. "To our regret and fear, it is heading for a bloodbath. Georgia wants to resolve the disputes with military action."

He said that the recent deterioration of relations between Moscow and Tbilisi, sparked by Georgia's arrest of four Russian army officers on spying charges, had been fabricated for political purposes.

"The initiative to worsen relations originated not from Russia," he added.

His comments were "not really surprising," according to a European diplomat, who categorised them as "verbal rhetoric."

Abkhazia and South Ossetia broke away from Georgia in the early 1990s when the Abkhaz and Ossetian ethnic groups revolted against central Georgian rule, resulting in the mass expulsion of ethnic Georgians.

Russia has warned that it would defend the separatist territories if the Georgian government launched an assault to win back control.

Energy concerns eased

Taking a more diplomatic line, Putin gave his backing to energy cooperation with the EU on the basis of "common principles."

"I would like cooperation to be not only mutually beneficial but that it be founded on common principles," Putin said.

The European Union, which gets a quarter of its gas and oil from Russia, was eager to receive guarantees over energy supplies on the basis, as European Commission President Jose Manuel Barroso put it, of reciprocity, transparency and market opening, while not "over-politicizing" debate about relations between Russia and the bloc.

The Europeans are concerned about Russia's recent decision to develop the huge Shtokman gas field without foreign partners, and threats to halt a project off Russia's Pacific coast run by

Anglo-Dutch energy giant Shell on environmental grounds.

On Shtokman, Putin said that the Russian gas monopoly Gazprom's decision to develop the vast gas field without foreign partners did not mean that the investment rules had changed in Russia.

Putin said he agreed with French counterpart Jacques Chirac, in judging that the EU Russia energy issue is a "joint problem" which requires "a joint solution."

"We should not let energy divide Europe and Russia as Communism once did," echoed European Commission chief Jose Manuel Barroso.

"Putin was blowing hot and cold," as he so often does during his trips to Europe, one European diplomat said.

"Open and frank"

Prime Minister Matti Vanhanen of Finland, whose country holds the EU's rotating presidency, called the talks with Putin "open and frank."

He added that the 25 had not shied away from tackling Putin on other sensitive issues including the murder of journalist Anna Politkovskaya, which has concerned human rights groups, and called for the perpetrators to be brought to justice.

Vanhanen and Barroso, who shared the press conference with Putin, stressed the need for a mutually beneficial relationship with Russia, which could encompass the key issues of Iran and North Korea.