Russia's Gazprom (GAZP.MM) on Monday cancelled a project to construct the South Stream pipeline to supply gas to southern Europe - an apparent casualty of the dispute between Moscow and the West over Ukraine.

The announcement was made after Russian President Vladimir Putin said earlier on Monday that Moscow could not carry on with the South Stream project if the European Union was opposed to it.

"The project is closed. This is it," Gazprom chief executive Alexei Miller told reporters.

The planned $40 billion Gazprom-led pipeline was supposed to

cross the Black Sea to southern Europe via Bulgaria and had been intended to start supplying gas next year.

Western powers have introduced economic sanctions against Russia over the Ukraine conflict and Europe is keen to lower its dependence on Russian gas supplies.

Speaking at a joint news conference with Turkish President Tayyip Erdogan, Putin said the European Commission was reluctant to give the green light to the South Stream project.

"We see that obstacles are being set up to prevent its fulfilment," Putin said. "If Europe does not want to carry it out, then it will not be carried out...We think this is against Europe's economic interests and is causing damage."

Putin said Bulgaria was under pressure from the European Union, which gets a third of its gas volumes from Russia.

"If Bulgaria is deprived of the possibility of behaving like a sovereign state, let them demand the money for the lost profit from the European Commission," he said.

To avoid disruption of supplies and to bypass Ukraine, Russia has built the Nord Stream gas pipeline directly to Germany across the Baltic Sea.

Putin said Russia would reduce the gas price for Turkey by 6 percent, starting next year, and had agreed to supply Turkey with an additional 3 billion cubic metres. Last year, 13.7 bcm of gas were pumped to Turkey via the existing Blue Stream pipeline.

He said Russia was potentially ready to build a gas hub on the Turkish-Greek border to supply Europe with gas to compensate for the loss of South Stream.

"We are ready to not only expand the Blue Stream, but to build another pipeline system to supply the growing demand of the Turkish economy, and if it is deemed justified, to set up an additional gas hub for the South European consumers on Turkish territory, near the border with Greece," he said.

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