Bulgaria has agreed to a gas pipeline deal with Russia that is expected to strengthen Moscow's grip over energy supplies to Europe.
Russia currently supplies most of the gas for Europe
The Bulgarian cabinet has agreed to allow the planned South Stream pipeline to pass through the country on its way from the Black Sea to southern Europe.
The South Stream project is seen as a rival to the planned Nabucco pipeline, which is backed by the EU and the US.
A top EU official says the South Stream deal will not harm Nabucco's prospects.
Russian President Vladimir Putin is currently on a state visit to Bulgaria.
He is accompanied by Dmitry Medvedev, the head of Russian gas giant Gazprom and Mr Putin's nominee to succeed him this year as president.
The pipeline deal was signed by Mr Putin and the Bulgarian President, Georgy Parvanov, at a ceremony in Sofia.
The South Stream gas scheme, said to be worth 10bn euros ($14.66bn; £7.4bn), is being jointly developed by Gazprom and the Italian firm, ENI.
The 900km (550-mile) pipeline is expected to take Russian gas under the Black Sea and overland across Bulgaria to markets in southern Europe. Russia has offered to site a major gas hub in Serbia, a traditional ally.
Bulgaria had also received an offer from the US and EU to join the rival Nabucco project.
Nabucco envisages bringing Central Asian gas through Bulgaria to Europe, in a move intended to reduce Europe's reliance on Russian resources.
Bulgaria was allied to the Soviet Union during the Cold War and joined the EU in 2007.
Mr Putin's visit has seen Sofia sign additional agreements with Moscow on the construction of an oil pipeline and a nuclear power station.
The BBC correspondent Nick Thorpe says the energy deals reveal Russia's growing influence in the Balkans.
According to the European Commission's spokesman on energy issues, the South Stream deal will not dent Nabucco's prospects.
"In the worst case scenario, the two pipelines will be complementary," Ferran Tarradellas told the BBC News website.
Russia has vast deposits of natural gas it is keen to export
"They will certainly not contradict each other. Nabucco is going to continue as planned."
A spokesman for Nabucco echoed this, saying the firm did not believe its plans overlapped with South Stream's.
However, an energy expert based in Moscow says the South Stream deal will be seen as a setback for Nabucco.
"Nabucco is in trouble for the short term," Konstantin Batunin, an oil and gas analyst with Alfa Bank, told the BBC News website.
He says the main question for the Nabucco project concerns its supply, rather than its route.
The chief source of Central Asian gas, Turkmenistan, recently agreed a major gas deal with Russia and according to Mr Batunin, it is now unclear if there will be enough gas left to sell to Europe.
"Turkmenistan has been using the negotiations with Nabucco as a bargaining chip against Russia," he says.
However, Mr Tarradellas of the European Commission says governments in Central Asia have been enthusiastic about Nabucco.
With the pipeline due to be completed in 2011, Mr Tarradellas says Nabucco will diversify Europe's gas supply by bringing access to fields in Central Asia as well, potentially, as the Caspian Sea region, Iraq and Egypt.