MOSCOW, January 2 (RIA Novosti) - Gazprom will supply natural gas to Ukraine at the European market price of $418 per 1,000 cu m in 2009, following Ukraine's rejection of a considerably lower price, the energy giant said.

Gazprom earlier offered Ukraine a price of $250 per 1,000 cu m for gas in 2009, about half the current average price in Europe. Ukraine, which paid $179.5 last year, said it was prepared to pay $201, however. The country's economy has been devastated by the ongoing global financial crisis.

Russia cut off natural gas supplies to Ukraine on Thursday after last-ditch talks on a 2009 contract failed late on Wednesday, but increased shipments to European states.

A spokesman for Ukraine's national oil and gas company Naftogaz confirmed that gas supplies had been cut. "We have noticed a reduction in pressure," Valentyn Zemlyanskiy said adding Ukraine was continuing to pump gas in transit onto Europe in full.

Gazprom said on Wednesday Ukraine's Naftogaz had threatened in a letter addressed to the monopoly that it could start confiscating Russian gas meant for European Union consumers after January 1, if no new contract was agreed for 2009.

The EU urged on Thursday both sides to engage in further talks. "All existing commitments to supply and transit must be honored," the EU president, the Czech Republic and the European Commission said in a joint statement.

Frequent gas disputes between Moscow and Kiev have raised concerns in Europe about the reliability of Russia as a supplier. Ukraine transits about 80% of Russian gas, a major source of revenue for Moscow, bound for the EU. Europe buys a quarter of its gas needs from Gazprom.

EU consumers have not reported a shortfall in gas deliveries so far.