Putin also met ministers and top oil executives at the Severodvinsk shipyard to discuss prospects for developing more Arctic fields which are estimated to contain up to a quarter of Russia's oil and gas reserves as well as other untold resource riches.

"The Arctic zone is a guarantee of Russia's economic power. Oil, gas, gold, diamonds and phosphates -- it's all there," Artur Chilingarov, a member of parliament who is also an Arctic explorer, told AFP before the meeting.

"We need to find new oil fields ... We need to go offshore," he said.

Officials said the rig, which is expected to be completed in 2010, is the first in the world able to operate in temperatures as low as minus 50 degrees Celsius (minus 58 degrees Fahrenheit) and withstand the impact of pack ice.

"We're increasingly going into the North. We're going into regions with a tough climate," said Alexei Miller, the chief executive of Gazprom, the state-controlled energy major for whom the rig is being built.

The rig's constructor, Sevmash, a secretive Soviet group in northern Russia that is best known as a manufacturer of nuclear submarines, said in a statement: "Building technology to tap offshore Arctic reserves is a priority."

Sevmash emphasised the rig's ability to operate in "extreme conditions."

The fragile Arctic environment and disputed boundaries between Canada, Norway and Russia make oil exploration in the region controversial. Russia says it has to drill in the Arctic as existing oil fields are drying up.

The Arctic region is believed to contain up to 100 billion barrels of oil, according to US official data, and is increasingly seen by the industry as a way of keeping pace with soaring demand amid record-high oil prices.

But environmentalists say there is currently no effective way of dealing with an oil spill in such icy conditions and they warn about the impact that drilling will have on Arctic wildlife such as polar bears and whales.

At Friday's meeting, Putin said Russia's declining oil production meant the industry was at a "critical juncture" and proposed to cut taxes and slash bureaucracy to encourage new oil development in Arctic regions.

"The prospects are good but some tendencies worry us. The rate of growth of production has gone down ... In the first quarter of this year, production even declined 0.3 percent," Putin told assembled ministers and oil executives.

The new rig showcased on Friday is intended to tap Gazprom's Prirazlomnoye field in the Arctic Ocean. It was started in 1995 but the project has been delayed by design and financing problems at the dilapidated Sevmash plant.

Sevmash said it now hoped to use the experience to build infrastructure for other planned Arctic projects such as the Shtokman gas field in the Barents Sea and oil fields off the coast of the Yamal peninsula in Siberia.

"Building a new generation of ice-resistant rigs for exploration in the Arctic is comparable to creating a nuclear fleet," Nikolai Kalistratov, the director of Sevmash, was quoted by his press service as saying.

The base of the rig measures 126 by 126 metres (413 by 413 feet) and it can house up to 200 workers. Once completed, the rig will be dragged by tug boats hundreds of kilometres (miles) from the shipyard to the oil field.

The Sevmash plant is in the town of Severodvinsk, a former prison camp and Russia's largest shipyard, located some 1,200 kilometres (745 miles) north of Moscow on the White Sea, a gateway to the Arctic Ocean.

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