Putin wrapped up talks with Ukraine's leadership in the early hours of the morning after flying in for a night-time visit days after the two countries agreed a landmark deal to extend the lease on a key Russian base.

He offered new President Viktor Yanukovych, who has overseen a resurgence in ties with Russia since coming to power in February, an effective merger of the two countries' nuclear power businesses.

"We are talking about creating a large holding which would bring together joint power generation, joint power station construction and the fuel cycle," said Putin.

"If Ukrainian specialists think this is too revolutionary a suggestion then we can act in stages, in progressive steps," Putin told Yanukovych. The Ukrainian president replied the idea was an "interesting suggestion".

The offer was the latest evidence of flourishing ties after the deal signed last week for Ukraine to receive a 30 percent discount on Russian natural gas imports estimated to be worth 40 billion dollars over 10 years.

In exchange, Kiev has extended the lease of Russia's Black Sea Fleet base in Crimea for another 25 years after 2017, a concession that provoked howls of protest from Ukraine's pro-Western opposition.

The deal marked a dramatic turnaround in Russian-Ukrainian ties after the relationship became so bad under Yanukovych's predecessor, the fiercely pro-Western Viktor Yushchenko, that Moscow refused to do business with him.

Using his trademark earthy language, Putin joked he "could have eaten" Ukraine's new leadership for the amount it cost Moscow to extend the lease on the base through the gas discount.

"It's going to be a burden, of course. And a major one," Putin told reporters the talks with Yanukovych and Prime Minister Mykola Azarov.

"The amount that this has cost us is really something else. For this kind of money I could have eaten Yanukovych and your prime minister together," said Putin.

"No base in the world costs this much."

He said that as a result of the price cut for Ukraine the Russian budget would lose 3.0 billion dollars in 2010 and then 4.0 billion dollars in 2011. The shortfall would be made up with money from reserve funds, he said.

"This will mean an increase in the budget deficit for us. And if Ukraine makes its budget using this reduced gas price then your deficit is going to be less than ours," he said.

Putin said the controversy in Ukraine over the lease extension was "to be honest, unexpected", saying former prime minister and current opposition leader Yulia Tymoshenko had never objected to it while she was in power.

"For us it is not just a question of money but a question of cooperation with Ukraine," said Putin.

The agreement is due to be debated Tuesday in the Russian lower house of parliament the State Duma and the Ukrainian parliament the Verkhovna Rada.

Russia's budget was already under pressure, running a deficit in 2009 equivalent to 5.9 percent of gross domestic product, the first such deficit in a decade.

The government forecasts a 6.8 percent deficit in 2010 and 4.0 percent in 2011.

Moscow has vowed the deal would ensure uninterrupted gas supplies to Europe via Ukraine, after a row in January 2009 led to Russia turning off the taps to Ukraine, leaving many European countries short of gas in the dead of winter.

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