(MOSCOW) - Hungary on Thursday became the latest country to sign up to Russia's politically sensitive South Stream gas pipeline despite a warning by a senior US official against going ahead with the project.

Welcoming Prime Minister Ferenc Gyurcsany in the Kremlin, President Vladimir Putin said that "if this project is realised, and I have no doubt that it will be, Hungary's significance as an important link for energy supplies to Europe will increase.

"And Hungary's own energy security will increase," Putin added, before officials from the two countries signed the deal entitled, "Cooperation in building a pipeline for transit of natural gas through Hungary."

The proposed South Stream pipeline is aimed by Russia at cementing Moscow's grip on Europe's gas market and at seeing off a US-backed rival skirting Russia, the Nabucco pipeline, analysts say.

It is part of a controversial two-pronged strategy that also involves building a northern pipeline route under the Baltic Sea to northern Germany.

On Thursday, US Assistant Secretary of State Daniel Fried warned Hungary's leaders to resist Russian pressure to abandon the Nabucco project, which is intended to reduce Europe's heavy dependence on Moscow for gas.

"Moscow has responded to the advance of the Nabucco project by exerting pressure on Hungary and its neighbours to strike a quick deal on South Stream," Fried said in an article published in the Hungarian newspaper Nepszabadsag.

"This is not the right time to have our attention diverted by a pipeline which will be three times as expensive as Nabucco and which will be used by a monopoly to stifle competition," he said, referring to Russian gas giant Gazprom, which will build the pipeline with Italy's ENI.

The Kremlin meanwhile heaped praise on Hungary, implicitly contrasting Budapest's friendly position with that of Western critics who worry about Moscow's energy might.

A Kremlin statement said that "as a member of the European Union and NATO, Hungary is pursuing a pragmatic course in the international arena and enhancing its reputation as a predictable and reliable partner."

Moscow signed deals with Bulgaria and Serbia including them in South Stream earlier this year.

The project envisages building a gas pipeline under the Black Sea from Russia to Bulgaria and then branches to Austria and Italy.

Gyurcsany has been criticised by politicians at home for not consulting sufficiently widely before agreeing to the project, a point of view Fried picked up on.

"We know very little about the negotiations which led to this outcome," Fried wrote.

The European Union relies on Russia for about a quarter of its gas supplies, a dependence that has driven the plans for the Nabucco pipeline which is intended to bring natural gas from Central Asia and possibly Iran.

Analyst Chris Weafer, of Moscow-based URALSIB bank, said South Stream looked set to make fast progress and could thus set back Nabucco.

In particular, he pointed out recent agreements between Russia and the Central Asian nation of Turkmenistan that would see Moscow maintain a strong grip on that country's gas exports.

Apart from Turkmenistan, the other probable source of gas for Nabucco, Iran, is also fraught with political difficulties, he pointed out.

South Stream "is a pipeline that was really not planned to be done that quickly. It's a direct result of the European Union having announced plans to build Nabucco," Weafer said.

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