Vladimir Putin pushed on Wednesday for closer integration among ex-Soviet states after the slide in Kiev's relations with Brussels and the surprise creation of a free trade zone in the former communist bloc.

The current prime minister and likely future president held late-night consultations on Tuesday with his Ukrainian counterpart following a stunning refusal by Brussels to meet with Ukrainian President Viktor Yanukovych following the jailing of his opponent.

Ukrainian Prime Minister Mykola Azarov said on Wednesday morning that it was only 'a matter of days' before Moscow and Kiev resolved their disagreement over energy prices -- one of the main sticking points in their current ties.

Moscow's cautious rapprochement with Kiev comes after Putin made a surprise announcement Tuesday that Ukraine and other ex-Soviet republics making up the Commonwealth of Independent States had agreed to set up a free trade zone.

That plan would be a major step toward realising the former KGB agent's dream of grouping the ex-Soviet republics in the so-called 'Eurasian Union' -- his first foreign policy announcement since announcing plans to return to the Kremlin in a job swap with President Dmitry Medvedev.

Putin -- who once called the collapse of the Soviet Union "the greatest geopolitical catastrophe of the 20th century" -- promoted a 'Eurasian Union' in an October 4 article that was instantly denounced by Republicans in the US Senate.

"To our own surprise, after long, tense but ultimately constructive negotiations, we resolved the main issue," Putin said after talks with his counterparts in Russia's second city of Saint Petersburg.

"We have agreed to sign today an agreement on a free trade zone in the CIS," Putin said as he disclosed the creation of a new post-USSR free trade association

He stressed that countries were "acting on their own volition" and said the agreement "significantly changes the configuration of economic and trade relations in the post-Soviet space."

The 11-nation CIS was formed in an urgent bid to give some structure to the struggling but interdependent republics that made up the Soviet Union prior to its collapse in 1991.

The union always excluded the three Baltic nations -- tiny lands that saw Soviet forces who made them a part of the USSR during World War II as occupiers -- and later lost Georgia after its 2008 war with Russia.

Isolated but energy-rich Turkmenistan has been an associate member since 2005 and asked to have until the end of the year to formulate its response to the agreement. Putin said Azerbaijan and Uzbekistan asked for more time as well.

Putin has also backed the idea of reducing global dependence on the dollar and on Tuesday night discussed setting up ruble-denominated trade during talks with his Ukrainian counterpart Mykola Azarov.

Ukraine had been pushing for closer EU integration until the two sides' relations stalled over the jailing of opposition leader and former prime minister Yulia Tymoshenko.

The EU on Tuesday postponed its meeting with Yanukovych and the CIS trade agreement was signed in Russia just a few hours later.

The respected Kommersant daily said news of the EU cancelling Yanukovych's visit was met with excitement on the Russian government plane flying into Saint Petersburg on Tuesday.

"Yanukovych will not release Tymoshenko because he knows that his supporters will jump ship at that point," the broadsheet quoted a senior Russian diplomat as saying.

"And the EU will not compromise on its principles. So, Yanukovych will come to us," the unidentified Russian official was quoted as saying.

Putin was later Wednesday to chair meetings of the Eurasian Economic Community and its Customs Union -- a group also comprising Belarus and Kazakhstan and one which Russia hopes Ukraine will join.

The Russian prime minister spokesman, Dmitry Peskov, told AFP 'it cannot be excluded' that the issue of Ukraine's membership would come up.