Russia's President Vladimir Putin today gave his personal backing to the move that has effectively re-nationalised one-tenth of all his country's crude oil production.

Last night the state oil firm, Rosneft, bought 100 per cent of Baikal Finance Group, the shock winner of Sunday's auction of the core Yukos unit Yuganskneftegaz.

"Today the state, using absolutely legal market mechanisms, is protecting its interests. I consider that absolutely normal," President Putin said.

The move is a bitter blow to Russian reformers who had backed the country's sometimes chaotic move to private enterprise under President Putin's predecessor, Boris Yeltsin, in the 1990s.

It also marks the final nail in the corporate coffin of Yukos, which had been one of the world's largest oil producers until the arrest in October 2003 of its founder and chief executive, Mikhail Khodorkovsky. Mr Khodorkovsky, who was once Russia's richest man, and a political foe of President Putin, has been in jail ever since, while a series of charges have been brought by the state against Yukos on a range of tax charges amounting to $27 billion.

"I can confirm we have bought it all," a Rosneft spokesman told Reuters in Moscow, although he gave no financial details of the deal.

The transaction bolsters Gazprom, the world's largest gas group, which had been expected to lead the bidding for Yuganskneftegaz. Now, through the use of Baikal and the takeover by Rosneft - which is soon to merge with Gazprom - the end result is much the same.

The move is one of the most decisive interventions by the Kremlin in business affairs since the fall of the Soviet Union and may put Yugansk's assets out of reach of attempts by Yukos's lawyers to halt the piecemeal destruction of the company.

The Rosneft purchase of Yugansk, which pumps one million barrels of oil per day, underscores the Kremlin's determination to prevail and claim Yukos's prize asset for itself.

It will make Rosneft, whose chairman is one of President Vladimir Putin's closest confidants, one of Russia's biggest oil firms with production of 1.45 million barrels per day, almost as much as Opec member Libya.

The move also confirms the ascendancy of hard-liners in the Kremlin, known as "siloviki," sworn to bringing to heel business "oligarchs" who rose to prominence under Yeltsin.

Putin justified the state’s actions by criticising the murky 1990s privatisations which handed control of the crown jewels of the Russian economy to a handful of well-connected businessmen, including Khodorkovsky, making many of them overnight multi-millionaires.

"Everyone knows exactly how the privatizations took place in the early 1990s, and how they used various tricks, including those which violated even the existing laws," President Putin said, speaking in the Kremlin. "Many market players won the rights to multi-billion-dollar state assets."

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive