Russian gas giant Gazprom said on Sunday Ukraine had rejected its latest offer on gas deliveries for 2006, starting Russia's countdown on a supply cut to its eastern neighbor later in the day.

"After a meeting with the Russian president, Gazprom's chairmansent a signed contract for gas supply and transit in 2006 to Ukraine's oil and gas company Naftogaz Ukrayiny," which contained the terms set by President Vladimir Putin, Gazprom spokesman Sergei Kupriyanov was quoted by the Interfax news agency as saying.

"The official word from Ukraine was they cannot sign it," Kupriyanov said.

Hours earlier, Putin agreed a three-month freeze on gas price for Ukraine, ordering Gazprom to supply gas at the current price for the first quarter of 2006 if Ukraine accepts a price hike starting the second quarter.

Putin said the offer would only stand good until the end of the day, and the Gazprom announcement came shortly after the deadline expired.

Ukraine was buying Russian gas for 50 U.S. dollars per 1,000 cubic meters for the past year, but Gazprom has asked Ukraine to pay more than quadruple this price and offered cash payments for the transit of its gas to European clients.

Responding to Putin's offer, Valentin Mondriyevsky, spokesman for Ukrainian Prime Minister Yuri Yekhanurov, said Ukraine is ready to pay market prices for Russian gas but both sides need to hold talks on the figures.

Ukrainian President Viktor Yushchenko said Friday the maximum price Ukraine can pay is 80 dollars per 1,000 cubic meters.

With no deal clinched before New Year's Day, Gazprom is expected to follow through on its threat to cut gas flow to Ukraine at 10:00 a.m. (0700 GMT) Sunday. Gazprom chairman Alexei Miller and a deputy chairman will issue the order, Interfax said.