BP has struck a deal to resolve the bitter dispute at TNK-BP, its Russian joint venture, that has caused a political firestorm and threatened the British oil group's future in the region.

Shares in BP climbed 2.6 per cent to 519.25p after the market learned that Robert Dudley, chief executive of TNK, would step down by the end of the year and that up to a fifth of the subsidiary could be floated on the international markets at an appropriate point in the future.

A new Russian-speaking independent chief executive will be appointed and the board expanded to include three new independent directors and four representatives each from BP and Alfa Access-Renova (AAR), the main shareholder which has been lobbying for change.

The memorandum of understanding that has been signed between BP and AAR brings to an end a fierce row that had threatened Western business dealings in Russia.

Peter Sutherland, chairman of BP, said the agreement would "create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state".

Tony Hayward, chief executive of BP, described the agreement as a "sensible means of resolving a situation that could not continue without causing serious damage".

"I now look forward to a fruitful conclusion of negotiations so that we can rebuild trust with AAR and resume our record of success for the benefit of all parties," Mr Hayward said.

He added: "A transparent, responsible approach to governance will be a critical factor in the appeal of TNK-BP to potential future investors, if the company is to be fully valued on the financial markets."

BP has been locked in a dispute with some of its Russian shareholders, including Mikhail Fridman of AAR, about the way the 50-50 joint venture is managed.

Mr Dudley has been forced to manage the joint venture from outside Russia after being forced to leave the country when his visa was not renewed. He has complained of a targeted harassment campaign, with questions being raised about whether Moscow was quietly trying to seize control of the venture and evict the British group.

The Russian shareholders, consisting of Mr Fridman and fellow oligarchs German Khan, Viktor Vekselberg and Len Blavatnik, hold their stake through AAR.

Mr Hayward paid tribute to Mr Dudley, calling him "an absolutely outstanding chief executive of great courage and strength of character." He said that during the past five years his leadership had been crucial in building what is arguably the most successful oil business in Russia.

TNK-BP made record profits of $4.7 billion (£2.6 billion) in the first half of this year, more than double the $2.1 billion for the same period last year.

Revenues totalled $28.3 billion in the half year, compared with $17 billion in the first half of 2007.

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