Russian President Vladimir Putin served notice to the United States on Monday that Moscow would proceed with its controversial arms sales to Iran and complete construction there of a nuclear power plant. Washington, which sees Iran as a "rogue state" capable of upsetting world stability, has denounced both the sales and the nuclear project.

Putin told reporters after talks in the Kremlin with Iranian President Mohammad Khatami that Russia would go ahead with arms deals as Iran wanted only supplies for its defensive needs. "For economic reasons, Russia is interested in (military) cooperation," Putin said. "And the political reasons are that we believe that Iran must be an independent state capable of defending its national interests."

The United States has applied strong pressure on Russia to sell no arms to Iran. Moscow had refrained from such sales under a secret deal with the Americans in 1995, but pulled out of the accord last year in the final stages of the U.S. presidential campaign, prompting criticism from Washington. General Leonid Ivashov, who oversees foreign relations at the Defence Ministry, said arms deals with Iran were a matter for Moscow and Tehran to decide on their own.

"Iran and Russia are sovereign states which fulfil their international obligations," he told reporters. "Some may like this cooperation, others not. Our countries will continue working together to their advantage." Khatami, the first Iranian leader to visit Moscow since the Shah in 1974, told Putin as talks opened that Tehran wanted to "begin a new spring in our relations". The two men had previously met last September at the UN Millennium summit.

The talks also produced an accord on future relations and a statement on the status of the resource-rich Caspian Sea, though the document did little to clarify uncertainties on borders with three other states - Azerbaijan, Turkmenistan and Kazakhstan. Russia and Iran had made clear in advance that they intended to pursue military cooperation. Both are interested in diversifying alliances to offset U.S. influence in the region.

Putin has tried to restore Soviet-era friendships by cultivating Iran and Iraq, where Moscow seeks lucrative oil contracts, and visiting North Korea and Cuba - moves that have generated U.S. unease. Putin said Russia would trade no weapons banned under international law.

"Iran does not make any claims on weapons lying outside international norms and Russian obligations in this sphere and the Russian Federation does not intend to violate its international obligations," he said. He did not say which arms Iran was seeking.

The daily Nezavisimaya Gazeta quoted officials from Russia's arms export agency as saying shipments could include spare parts for BMP-1 and BTR-80 armoured vehicles and T-62 and T-72 tanks. It said parts could also be supplied for Su-24, Su-25 and MiG-29 aircraft and three types of helicopter.

Putin said Russia would complete the nuclear power station in the Gulf port of Bushehr, a project Washington says could enable Iran to produce nuclear weapons. "The Russian Federation is interested in and ready to take part in...such work," he said.

Putin said Iranian complaints about construction delays would be put right, with the work to be completed under the supervision of the International Atomic Energy Agency. Khatami was also meeting Prime Minister Mikhail Kasyanov and Foreign Minister Igor Ivanov. His four-day stay includes stops in St Petersburg, and Tatarstan in central Russia, home to many Muslims.