MOSCOW -- Russia said it would stop supplying Ukraine with gas on Jan. 1 after weeks of negotiations over a new supply contract for 2009 ended in failure.

The Chief Executive of Russian energy giant OAO Gazprom Alexei Miller told reporters late on Wednesday that Ukraine had rejected a Russian proposal to increase 2009 prices to $250 per 1,000 cubic meters from $179.50 at present.

Further developments will be closely watched in Europe. A similar dispute led to supply disruptions there in 2006, something all parties say they want to avoid this time. Then, the move caused panic, with many European politicians saying they feared an emboldened Russia was using its energy clout to intimidate its neighbors. Moscow has had a difficult relationship with Kiev since 2004 when pro-Western forces took the political initiative, setting the country on an often chaotic course that has irritated the Kremlin.