Russian President Vladimir Putin has slashed the cost of gas sold to Ukraine and agreed to buy billions of government bonds.

The deal comes amid massive protests in the Ukraine over the government rejecting closer ties with the European Union in favour of a new alliance with Russia.

Putin sealed the deal after talks in Moscow with his Ukrainian counterpart, Viktor Yanukovych.

“We have all this work done to put Ukrainian economy and trade balance back to positive dynamic on the right track. And this underlines our strategic relations (with Russia).”

The deal sees Russian state-controlled gas monopoly Gazprom cutting the price of gas deliveries from January 2014.

Putin also said Russia would buy nearly 11 billion euro of Ukraine’s government bonds.

Protesters have been camped on Kyiv’s main square for nearly a month, angry at the prospect of being drawn back under the influence of the Kremlin.

Opposition leaders had warned Yanukovich not to bother coming back to Ukraine if he “sells out” to Russia.

The Russian President tried to ease concerns over the deal by saying the two leaders had not discussed the idea of Kiev joining a Kremlin-led free trade bloc.

Hundreds of thousands took to the streets on Sunday in a huge rally dubbed the ‘day of dignity’, where they demanded the resignation of the government and called for European human rights.

However, the country remains deeply divided between the European-leaning west and Russian-speaking east.