Turkey has reached agreement with Russia to allow a pipeline to be built under the Black Sea to transport Russian gas to Europe.
The deal, removing a major obstacle to the South Stream project, was signed in Moscow after talks involving both countries’ governments and energy companies.
It follows prolonged deadlock between Russia and Turkey over the proposed route which runs through Turkish territorial waters.
Due for completion in 2015, South Stream is seen as a rival to the EU-backed Nabucco pipeline which is set to ship gas from the Caspian region to Austria.
Vladimir Putin had declared that South Stream – which also involves Italian, French and German companies – could avoid Turkey by taking an alternative route.
Relations have now warmed markedly, the Russian prime minister thanking Turkey over its decision.
The EU has said it does not want to block South Stream, but it has admitted it wants to reduce European dependence on imported Russian gas.