The present agreement, which was signed in October 1997, runs out on December 31 this year.

Under the new agreement, Alrosa has agreed to sell De Beers at least one-third of its output of raw diamonds for the next three years.

In practice, Alrosa is likely to continue to sell most of its output to De Beers.

The agreement is important to both sides. Prime Minister Yevgeny Primakov met De Beers chairman Nicholas Oppenheimer to confirm the deal, which was signed in Moscow shortly afterwards.

For De Beers, it confirms that the company's Central Selling Organisation will still control the world diamond trade.

For Alrosa, which is desperately short of investment, the three-year deal means that the company may be able to return to world markets to try and raise additional finance. A planned Eurobond issue was postponed because of Russia's financial crisis.

Trade deal extended

The trade agreement was an extension of current terms whereby Russia sells $550m-worth of diamonds to South Africa per year.

De Beers sells $4.6bn worth of diamonds worldwide each year, but sales have been depressed by the Asian crisis.

A spokesman for Alrosa said the text of the agreement had been coordinated recently by the supervisory council, representing the governments of the Russian Federation and the Republic of Sakha (Yakutia) and De Beers, in London.

Russia is one of the world's biggest diamond producing countries. Only seven countries account for 80% of the world's rough diamond supply.