Russia's Gazprom is to take control of Armenian pipelines and a power station in exchange for setting gas prices at half of European levels until 2009.
Gazprom's attempts to hike prices has met resistance
The move is part of wider plans by the Russian monopoly to seize access to gas supplies among former Soviet republics.
Russia said it would raise gas prices to $110 per 1,000 cubic metres, almost double what is it now, but far cheaper than European rates.
Armenia relies on Russia for gas but wants to import gas from elsewhere.
Gazprom would be able to control part of a 40km (25 mile) long pipeline, bringing gas from Iran to Armenia, following this new arrangement.
The agreement would also allow Russia to export electricity from the Razdan-5 gas fired power plant.
Armenia is strategically important to Russia in the Caucasus and hosts a Russian military base there.
Some critics say Russia is using its energy position as an economic and political tool.
"Without any doubt, having the energy market monopolised by one owner is bad for any economy" said economist Alexander Agadzhanov.
Gazprom has been trying to raise prices among its neighbours but has met with fierce opposition.
Attempts by Gazprom to hike gas prices from $50 to $230 per 1,000 cubic metres was rejected by Ukraine.
Gazprom subsequently cut supplies to Ukraine on 1 January 2006 due to the failure to reach an agreement, worsening relations with the country.
More recently Gazprom said Belarus, must pay three times more for its gas supplies in the future.
A close ally of Russia, Belarus was the only ex-Soviet republic not to experience Russian gas prices last year.
Russia aims to charge $250 per 1,000 cubic metres to all its former Soviet neighbours in the longer term, matching European levels.
But such a move is likely to cripple countries whose economies rely heavily on cheap gas prices.