Medvedev had in a state-of-the-nation address on November 12 made his strongest call yet for Russia to end its dependence on oil exports and modernize its economy, in a speech some analysts saw as a challenge to Putin.

"I am sure that this call reflects the mood of all of Russian society," Putin said in a keynote speech to the annual congress of the ruling United Russia party in Saint Petersburg.

"The crisis, with all its severity, has shown how costly it is for a country to reject innovation, have low work productivity, waste resources and have a slow bureaucracy," Putin said.

"The president posed the question about the necessary, thorough modernization of the Russian economy -- overcoming chronic backwardness and moving the country to a more modern level of development," Putin added.

Putin congratulated United Russia, which dominates the Russian parliament, on working to prevent the economic crisis from turning into the financial meltdown that Russia had experienced in 1998.

"We have held this promise," Putin said to applause from thousands of delegates.

But he also warned that Russia's GDP would still contract 8.0-8.5 percent this year. "This is not as much as we expected... but it is still a lot and worse than in several other countries," Putin said.

Economists say Russia has suffered especially badly in the economic crisis due to its failure to implement reforms during Putin's 2000-2008 presidency when it was helped by high oil prices.

The speech represented a reversal of the November 12 state of the nation address when Putin -- still seen by most as the Russian number one -- had sat quietly and attentively as Medvedev laid out his vision for Russia's future.

But this time it was Medvedev who listened to the speech, although he had earlier repeated his call for economic modernization in a short introductory address.

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