MOSCOW – The prime ministers of Russia and Ukraine announced a deal early today to settle the gas dispute that has drastically reduced supplies of Russian gas to Europe for nearly two weeks.

Russian Prime Minister Vladimir Putin said Ukraine will pay 20 percent less than the European price for the gas this year. This means a substantial increase for Ukraine in the first quarter but the price could fall significantly later in the year as gas prices are expected to drop.

Ukraine Prime Minister Yulia Tymoshenko said natural gas supplies would resume once the two countries’ gas companies sign a contract. It was not clear how soon this would happen. Russia’s Gazprom and Ukraine’s Naftogaz, both state controlled, were told to prepare the documents.

The two leaders reached the agreement in talks that stretched into the early hours of the morning after a meeting Saturday with leaders from the 27-nation European Union ended without a resolution.

The EU normally receives about one-fifth of its gas supplies through Ukraine. Nations in eastern Europe that rely on Russia have been left with virtually no new supplies.

The EU threatened to review its relations with both countries if their dispute is not resolved this weekend. EU spokesman Ferran Tarradellas said Saturday the EU delegation was “encouraged by the discussions” because Russia and Ukraine were seeking solutions rather than just blaming each other, but “what matters are results.”

Ukraine paid $179.50 per 1,000 cubic meters of gas in 2008, less than half the price paid by European countries. The European price for the first quarter of 2009 is about $450 but is expected to fall to reflect the decline in world oil prices.