Russia is to build new space and missile defence shields and put its armed forces on permanent combat alert, President Medvedev announced yesterday.

In a sharp escalation of military rhetoric, Mr Medvedev ordered a wholesale renovation of Russia’s nuclear deterrence and told military chiefs to draw up plans to reorganise the armed forces by December.

He said that Russia must modernise its nuclear defences within eight years, including the creation of a “system of air and space defence”.

The announcement puts Russia in a new arms race with the United States, which has infuriated the Kremlin by seeking to establish an anti-missile shield in eastern Europe. The US argues that the shield is aimed at rogue states such as Iran, but Russia is convinced that its own security is threatened.

Mr Medvedev told military commanders that “all combat formations must be upgraded to the permanent readiness category” by 2020. He added that Russia would begin “mass production of warships, primarily nuclear cruisers carrying cruise missiles and multi-purpose submarines”.

“A guaranteed nuclear deterrent system for various military and political circumstances must be provided by 2020,” he said after attending military exercises in the southern Urals region of Orenburg.

Tensions with the West have soared to new levels since Russia’s war with Georgia last month. Mr Medvedev told army chiefs that the conflict showed that “a war can flare up suddenly and can be absolutely real”.

The military build-up was announced as Russia wages a struggle to prevent Georgia and Ukraine entering Nato. The military alliance is due to consider fresh applications from the two former Soviet satellites in December.

Russia also openly declared its ambition to rival the US in Latin America yesterday as Prime Minister Vladimir Putin promised to sell nuclear technology to Venezuela.

Mr Medvedev met Venezuela’s President Hugo Chavez in Orenburg. Tthe Kremlin issued a statement calling their relations a “counterweight to US influence” and added that Venezuela sought “a widening of our presence in the region”.

“We are ready to consider opportunities for cooperating on the use of atomic energy,” Mr Putin told Mr Chavez during earlier talks in Moscow.

“Latin America is becoming a noticeable link in the whole chain of the emerging multipolar world. We will pay more and more attention to this area of our economic and foreign policy.”

The announcement of atomic assistance is certain to alarm Washington. Moscow has already angered the West by delivering enriched uranium to Iran for its Russian-built power station, amid fears that Tehran is secretly building a nuclear bomb.

Venezuela’s fiercely anti-American leader has long coveted his own nuclear energy programme, but insists that he has no desire to build an atomic bomb. He lavished praise on Mr Putin during his second visit to Russia in as many months.

“Today, like never before, all that you said on the multi-polar world becomes reality. Let us not lose time...The world is developing fast geopolitically,” Mr Chavez said.

The Kremlin despatched its nuclear-powered warship Peter the Great and a submarine destroyer, Admiral Chabanenko, to Venezuela on Monday for military exercises in the Caribbean, which is traditionally America’s backyard. It is Russia’s first naval mission to Latin America since the end of the Cold War.

The move was seen as a retort to the passage of American warships through the Black Sea to deliver aid to Georgia after the war. It came just days after Russian strategic nuclear bombers visited Venezuela for the first time, in what Mr Chavez described as a warning to the US.

Mr Medvedev said that the joint naval exercises between Russia and Venezuela would demonstrate “the strategic nature of our relations”. The Kremlin earlier announced that it was giving Venezuela a $1 billion loan to buy Russian weaponry.

Mr Chavez has already struck deals worth $4.4 billion since 2005 to buy jet fighters, tanks and 100,000 Kalashnikov assault rifles. The two countries also edged closer in energy relations after Russia’s Gazprom and Venezuela’s state-run oil company struck a deal to create an “oil and gas consortium”.

Venezuela is the ninth largest oil producer in the world and a major supplier to the US, while Russia is the second largest oil exporter and has a quarter of global gas reserves. Mr Chavez said that the joint venture would be “the biggest oil consortium on the planet”.

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