"The last round of talks with Ukraine is beginning. We are counting hours," the firm's head Alexei Miller said.

He told Russian news television channel Vesti that "Gazprom will have no grounds for supplying gas to Ukraine" if it does not pay out its debt.

Ukraine is a key transit route of Russian gas to Europe, and a supply cut could affect countries further west.

Gazprom has said Ukraine owes USD 1.67bn for gas and USD 450mn in fines.

Gazprom, the world's largest gas producer, supplies a quarter of the European Union's gas needs, or 42 percent of EU gas imports.

A similar row between Gazprom and Ukraine in 2006 led to gas shortages in several EU countries.

Prices impact

On Tuesday, Gazprom reported a solid rise in profits and sales following record gas and oil prices in the first half of the year.

For the six months to June 30, net profit jumped 85 percent to 609.4bn roubles (USD 20.8bn) compared with the same period in 2007.

Sales rose 52 percent to 1.74 trillion roubles on both higher prices and volumes.

However oil prices have slumped from July highs and most observers expect oil firms to see future profits slide.

The firm also said the credit crunch has affected its ability to attract loans.

"At the moment the management can not certainly assess the impact of further decrease in financial markets' liquidity and the growing instability of foreign exchange and stock markets on the group's financial state," the company said in a statement.