Nato and Russia traded accusations yesterday after the alliance accused Moscow of breaking the peace agreement that ended the war with Georgia, a day after it expelled two Russian diplomats in a spying row.

At a ceremony in the Kremlin yesterday Russia assumed formal control of the borders of Abkhazia and South Ossetia in agreements signed by President Medvedev with the leaders of Georgia’s two breakaway regions. The signing elicited a sharp response from Nato, which said that the treaties were in “clear contravention” of the ceasefire brokered by President Sarkozy of France to end the war between Russia and Georgia last August.

In return, the Russian leader lashed out at Nato exercises due to start in Georgia next week, calling them “an open provocation”. He said: “All responsibility for possible negative consequences will lie with the people undertaking the relevant steps.”

Relations were soured further as Moscow threatened “harsh and decisive” retaliation against Nato’s decision to expel two Russian diplomats in connection with a spying operation uncovered in Estonia. One of the men was Vassili Chizhov, the son of the Russian Ambassador to the European Union; Viktor Kushakov, Russia’s chief counsellor to Nato, was the other man ordered to leave the Russian mission in Brussels.

The expulsions were linked to the case of Herman Simm, an Estonian Defence Ministry official jailed for 12 years in February for passing secrets to the Russian Foreign Intelligence Service.

The Foreign Ministry in Moscow called the expulsions “a gross provocation . . . on an absolutely invented pretext”. Dmitri Rogozin, the Russian Ambassador to Nato, said that they “cannot go without answer”.

Mr Medvedev signed the defence agreements with Abkhazia and South Ossetia a day after Nato resumed formal contacts with Russia at ambassadorial level through the Nato-Russia Council. The alliance suspended the council for eight months in response to Russia’s occupation of Georgian territory after the five-day war and Moscow’s subsequent recognition of Abkhazia and South Ossetia as independent states.

The treaties hand power to Moscow to guard the de facto borders of Abkhazia and South Ossetia with Georgia, as the Kremlin tries to legitimise the presence of almost 8,000 Russian troops in the territories. The agreement also covers Abkhazia’s Black Sea coastal waters.

The expulsions and fresh tensions over Georgia have cast a shadow over efforts by President Obama to improve relations between Russia and the West. Russia is already in breach of the ceasefire deal because troops and tanks continue to occupy South Ossetian areas that were under Georgian control. The deal brokered by the EU required all sides to pull back to the positions that they held before fighting broke out on August 7.

Russia argues that it has bilateral agreements with the two new “states” that overrule the ceasefire agreement and justify the presence of its military in Abkhazia and South Ossetia. President Saakashvili of Georgia condemned the new treaties as “very dangerous” and said: “You cannot legalise something that is fundamentally illegal.”

Mr Medvedev criticised the Nato exercises in Georgia from May 6 to June 1 as a breach of the ceasefire agreement because it would encourage the Government in Tbilisi to pursue “the course of remilitarisation”. A Nato spokesman said that the anti-terrorism exercises involved only 400-450 troops and were “clearly no threat to anybody”.

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