"Gazprom should break the vicious circle of non-payments," Yeltsin told company chief Rem Vyakhirev, a day after Prime Minister Sergei Kiriyenko threatened to seize the vast company's assets if it did not pay its tax bill. The government's threat against Gazprom was the most radical and riskiest move yet by Kiriyenko's two-month-old cabinet, which is struggling with a financial crisis and hopes for a $10-$15 billion loan from the International Monetary Fund.

It suspended the threat after the company -- which supplies gas to industry, homes, and the army and claims its customers owe it more than it owes the government -- pledged to pay around $645 million in tax a month, four times what it paid in June. The IMF welcomed the move but said more fiscal reforms were needed forMoscow to get the new aid package from the fund. As if on cue, the lower house of parliament passed the general part of a new tax code designed to increase revenue collections by simplifying the current system.

The news helped boost battered Russian shares up nearly five percent. But former acting prime minister Yegor Gaidar said Russia badly needed the IMF funds quickly if it was to avoid devaluing the rouble, a move he said could have devastating effects. Two other pieces of bad news hit the government.

Oil multinational Royal Dutch/Shell group said it was pulling out of a consortium with Gazprom to tender for a 75 percent stake in the Russian state oil company Rosneft, striking a blow at Moscow's bid to raise more funds for state coffers.

And in Siberia, angry coalminers blocked the Trans-Siberian railway for three hours to remind the government that the wage delays that prompted a lengthy and damaging blockade last month had not disappeared, despite government pledges to help. Kiriyenko toldreporters the government saw the action against Gazprom - under which the asset seizure threat was suspended until August 1, but not dropped - as a test case.

"A great number of taxpayers were watching what was happening, if we had let it go everyone would have felt able not to pay," he said. "A lot of attention was focused on it." Kremlin spokesman Sergei Yastrzhembsky said Russia's economic woes had made Yeltsin unhappy, but that he was right behind the government's moves against tax debtors. "The president is not in the best mood, which is quite natural in the current situation, but he is in a very decisive mood and he is sure that the actions of the government are precise and adequate for the situation," he told reporters.

"Payments to the budget have to be made in full, irrespective of whether you (Gazprom) have been paid yourself," Yeltsin told Vyakhirev. The Gazprom crackdown was part of a fresh government offensive against tax dodgers. The day before it also froze the assets of Severonikel, a unitof Russia's major metals producer Norilsk Nickel, in a bid to unlock 250 million roubles of tax. The tax service is also targeting national electricity company UES and its subsidiaries for tax arrears, ta chief Boris Fyodorov said on Friday.

But he also praised UES chief executive Anatoly Chubais for cooperating with tax authorities. The government, struggling to pay chronic wage arrears to millions of public sector workers while keeping a tough monetary policy, says it also plans to squeeze firms that do not pay their bills to Gazprom.

The head of the International Monetary Fund, Michel Camdessus, gave a cautious welcome to Gazprom's deal with the government. "Any positive deal is a positive sign. But I am not telling you that it is significant by far," he said in Vienna.

Gaidar, who oversaw the beginning of Russia's radical economic transition and still advises the government, told Reuters the government badly needed to get the IMF funds within a month to avoid having to devalue the currency."InRussia, devaluation is the beginning of radical financial destabilisation," he said. "I think that risk is terribly serious." Yeltsin on Friday also convened a Kremlin meeting of the Security Council to discuss Russia's nuclear strategy. He later held a "warm, friendly" telephone conversation with Chinese President Jiang Zemin, the Kremlin said.