Russia's Gazprom has threatened to charge neighbouring Belarus more for its gas.
A crisis meeting was held in Minsk following Gazprom's decision
The threat to end subsidies came after Belarus refused to set up a joint venture to manage pipelines running through it to Poland and Germany.
Analysts said the move was also backed by the Kremlin, increasingly unhappy with the policies of Belarus President Alexander Lukashenko.
Mr Lukashanko has been criticised in the West for stifling democratic freedoms and violating human rights.
Gazprom said the higher prices would kick in next year.
Belarus currently buys Russian gas at a substantial discount.
"We see no reason why we must keep supplying Belarus consumers at Russian domestic prices, generating no profit.
"If we cannot agree (on the venture) we should switch to market conditions," said Gazprom's spokesman Sergei Kuprianov.
The Russian business daily Kommersant said Gazprom's decision followed President Alexander Lukashenko's announcement that the republic would not start using the rouble in 2005.
Gazprom spokesman Igor Voloboyev told AFP news agency that the company's chairman Alexei Miller had sent a letter on Thursday to Pyotr Petukh,
the head of the Belarusian state natural gas pipeline carrier,
informing him of the decision.
The move by Gazprom is likely to have severe consequences for the republic already impoverished by its Socialist-style command economy and iron-fist rule by President Lukashenko.
Belarus has maintained close ties with Moscow since the collapse of the Soviet Union.
"The Belarusian economy just isn't ready for that," a top Belarus official told AFP.
According to the agency, the official appeared to hint at possible retaliation, pointing
out that Ukraine, which pays 70% more than Belarus for its
gas from Russia, charges two-and-a-half times more in transit
pipeline fees than Belarus.
Both Belarus and Ukraine are key routes for Russian gas
exports to western Europe.
Gazprom has been locked in a dispute over its plans to buy the Belarusian monopoly gas carrier, Beltransgaz.
Russian commentators also say Moscow is seeking to exploit President Lukashenko's isolation for financial gain,
allowing Russian firms to buy Belarus companies slated for