Mr Putin spoke of improving relations through economic ties

Speaking in Tokyo, he said the pipeline would bring oil supplies to the entire Asia-Pacific region, including Japan.

Tokyo is competing with China over the route of the pipeline, which is already in the first stage of construction.

Mr Putin is in Japan to boost the two nations' rapidly expanding economic ties, but little progress is expected over a 60-year-old territorial dispute.

He later held talks with Japanese Prime Minister Junichiro Koizumi.

"We plan to build the pipeline to the Pacific coast with eventual supplies to the Asia-Pacific region including Japan," Mr Putin told a meeting of Russian and Japanese business leaders in Tokyo.

Tokyo has been lobbying for the second stage to be constructed to the Pacific coast. Beijing wants it to head south, to the industrial cities of northern China.

No date has yet been set for the second stage of construction.

"I'm confident that the implementation of this project will significantly strengthen the energy infrastructure of the entire region," Mr Putin said.

'Deep gulf'

Relations between Russia and Japan have been strained by the long-running dispute over four small islands off Japan's coast.

The islands, known as the southern Kurils in Russia and the Northern Territories in Japan, were occupied by the Soviet Union after WWII.

Russia has said it may surrender two of the islands, but Japan wants all four returned.

Because of the dispute, the two countries have never signed a peace treaty to formally end the war.

Ahead of Mr Putin's visit, Mr Koizumi admitted there was a "deep gulf" over the issue, and warned an agreement was unlikely to be reached in his talks with the Russian leader.

Mr Putin has also warned that he would not discuss giving up control of the islands.

But he told the meeting that stronger economic relations between the two countries would improve their overall ties.

"I'm confident that building stable, pragmatic long-term economic ties is being supported by politicians' efforts to build a constructive partnership," he said.

"This dialogue will contribute to more openness and confidence between our business communities."

During Mr Putin's three-day visit, the Japanese government is expected to sign an agreement endorsing Russia's bid to join the World Trade Organisation.

For its part Moscow has made sympathetic noises about Japan's own ambitions to become a permanent member of the UN Security Council.

RUSSIA'S EASTERN PIPELINE CHOICE