Russia threatened to deploy rockets in the European Union’s backyard yesterday in retaliation for American plans to install a missile defence shield.

Sergei Ivanov, the First Deputy Prime Minister, said that Russia could place missiles in the exclave of Kaliningrad if the West rejected an offer to cooperate on the defence programme.

Kaliningrad is Russia’s outpost in the EU and is surrounded by Poland and Lithuania. The threat to turn it into a missile base against the EU signalled a fresh surge in tensions between Russia and the West a day after President Putin put new proposals to US President Bush to resolve the dispute.

“If our offers are accepted, Russia will not consider it necessary to deploy rockets in the European part of the country, including Kaliningrad, to counter the threat,” Mr Ivanov said during a visit to Uzbekistan.

“If our proposal is not accepted, we will take adequate measures. An asymmetrical and effective response will be found. We know that we will do this.”

The US wants to place ten interceptor missiles in Poland and a radar station in the Czech Republic to counter possible rocket attacks from “rogue states” such as Iran. Russia has denounced the plan as a threat to its own security.

Mr Ivanov has overall responsibility for Russia’s defence industries and is the front-runner to succeed Mr Putin as president in elections next March.

The confrontation is the most serious between Russia and the West since the end of the Cold War. Mr Putin told The Times last month that he would target missiles at Europe if the US ignored Russia’s objections.

He later offered use of a Russian-controlled radar station in Azerbaijan, on the border with Iran, in place of the plan to locate the missile defence shield in Eastern Europe. However, US and Nato experts regard the ageing radar station as inadequate.

Mr Putin set out further proposals at his meeting with Mr Bush in Kennebunkport, Maine, on Monday. He suggested the creation of joint Russia-Nato early warning centres to analyse data on missile launches, and offered to modernise.

Mr Putin said that the US missile shield would be rendered unnecessary as a result. Mr Bush called the proposals “very innovative” and promised to study them, but added that the shield must still be based in Eastern Europe.

Yesterday’s threat from Mr Ivanov will have caught Washington – where most officials were absent because of the Independence Day holiday – largely unawares.

The White House had hoped that the “lobster summit” in Kennebunkport would help to thaw the chill in recent US-Russian relations.

In a joint press conference after Mr Putin had caught a fish on a boat trip, Mr Bush said: “Do I trust him? Yes, I trust him. Do I like everything he says? No. And I suspect he doesn’t like everything I say. But we’re able to say it in a way that shows mutual respect.” US State Department officials play down the Kremlin’s rhetoric, suggesting it has more to do with looming Russian parliamentary elections than an imminent onset of a new Cold War.

On Tuesday Condoleezza Rice, the US Secretary of State, issued a joint statement with Sergei Lavrov, the Russian Foreign Minister, on the need to cut their arsenal of nuclear weapons “to the lowest possible level consistent with national security requirements and alliance commitments”. But Mr Ivanov’s remarks make clear that the siloviki, the security service and military factions in the Kremlin, remain determined to confront Washington if the US presses ahead with its plan.

There is also an element of “good cop, bad cop” as Russia seeks to extract concessions from the US. As Mr Ivanov was speaking, Mr Putin issued a statement to mark American Independence Day, in which he said he was certain that US-Russia relations would grow stronger. “I am sure that, despite known disagreements, which are unavoidable in an open and honest dialogue, the policy of comprehensive development of bilateral ties in all areas will continue,” he said.

Mr Putin and Dr Rice have rejected claims that a new Cold War is beginning, despite a deterioration in relations over missile defence and the future status of Kosovo. But Mr Putin issued a warning in May that Europe would be turned into a “powder keg” if the missile shield went ahead.

From Teutonic knights to tourism

— Founded by Teutonic knights in the 13th century, Kaliningrad is a Baltic enclave of Russia, isolated from the rest of country. One of Europe'smost beautiful cities, it was destroyed in the Second World War

— Devastated by the collapse of Soviet Union, it is currently enjoying a revival. The Kremlin is promoting it as a luxury tourist destination, building a $60 million (£30 million) airport

— Gambling will be legalised in a special “casino zone” from 2009. International investors are building up to 30,000 hotel rooms in the “Baltic Las Vegas”

— It is Russia's top area for economic growth. Average salaries rose 31 per cent from between 2006 and 2007

— Since June 1 Kaliningrad’s 950,000 citizens must pay €35 (£24) for a visa to cross by land to Russia, as part of a broader agreement between Moscow and Brussels

Source: Times research

Times Recommends

• Google to digitise Iraqi artefacts
• Renault angers parents by naming new car Zoé
• Analysis: most lawless part of Philippines