Mr Putin has been criticised over new rules for foreign NGOs

"We are for their funding being transparent... we don't want them led by puppeteers from abroad," he said.

However he ruled out any expulsion of the British diplomats concerned.

NGOs must not be used by some states as an instrument of foreign policy on the territory of other states Vladimir Putin

"Let them stay... It will be nicer for us to know that we can keep an eye on these people," he told reporters at his annual Kremlin news conference.

He said the case "will not lead to a lowering of the level of our relations with Britain" - relations he characterised as "robust".

Mr Putin has signed a law giving the authorities wide-ranging powers to monitor the activities and finances of NGOs.

The new powers, which include the right to suspend NGOs should they "threaten Russia's sovereignty or independence", have been condemned by both domestic and international rights groups.

The rules are widely seen as a Russian effort to prevent any Ukraine or Georgia-style revolution spearheaded by NGOs.

The FSB security service - the main successor to the Soviet KGB - has accused Western intelligence agents of using NGOs to foment revolution in the former Soviet Union.

The authorities' new powers cover the activities of numerous charities in Russia as well as non-profit groups promoting human rights and democracy.

Defence of G8 role

Human rights activists have also attacked Russia's current chairmanship of the G8, accusing Mr Putin of authoritarian methods.

But he hit back on Tuesday, saying Russia's role in the grouping of leading industrialised countries was backed by all the leaders in it.

"No-one is against our active participation in this club. No-one wants the G8 to return to a group of fat cats," he said.

Mr Putin said Russia's economic growth last year had exceeded expectations, even though many Russians were still poor.

He also said that the G8 was not only about the economy but about global security.

Pressure avoided

Mr Putin warned of the danger of a revolution in Uzbekistan, saying it could turn the Central Asian state into "another Afghanistan".

Russia has avoided putting pressure on the authorities in Uzbekistan, despite international outrage over their harsh crackdown against opposition activists.

Mr Putin covered various other issues at his news conference:

• He urged the Palestinian group Hamas, triumphant after its election victory, to engage in a peaceful dialogue and acknowledge Israel's right to exist.

• He sharply criticised Georgia's pro-Western leaders, who have blamed Russia for a chronic shortage of gas. "What have we heard and seen from the Georgian leadership? Just insults against us," Mr Putin said.

• He defended Russia's close relations with Belarus President Alexander Lukashenko, who has been sharply criticised in the West for muzzling his political opponents. "This is not support for the regime, it is support for the fraternal Belarussian people," Mr Putin said.