The construction project is due for completion in 2012
Construction of the controversial Nord Stream pipeline from Russia to western Europe under the Baltic Sea has been officially launched.
Gazprom holds 51% of Nord Stream, which will run from the Russian port of Vyborg to Germany's Greifswald.
Russian President Dmitry Medvedev and German Chancellor Angela Merkel attended the ceremony near Vyborg.
The project was given the go-ahead only in February amid fears that the pipeline could damage the Baltic Sea.
President Medvedev said at the ceremony that the pipeline "for the first time - which may be one of its main achievements - will ensure direct supplies of Russian gas to western Europe, bypassing transit territories".
The existing pipelines run from Russia to EU countries via Ukraine, Belarus and Moldova.
Russia provides up to 30% of the gas consumed in Europe, and many European countries have been keen to secure alternative energy supplies.
Critics have argued that European countries do not need more gas from Russia and that the project is too expensive.
But Gazprom deputy chief executive Alexander Medvedev said there was plenty of demand for the gas.
"All the gas volumes have either been contracted, or have been formalized in binding obligations," he told journalists.
Gas supplies from Russia to Europe have been threatened or disrupted in the past due to political and financial disputes between Moscow and its neighbours.
But Russian President Dmitry Medvedev said at the ceremony: "This country [Russia] has been cooperating with European neighbours in the gas sector for over 40 years.
"This cooperation has stood the test of time to the full extent."
The ceremony was also attended by Nord Stream board chairman and former German Chancellor Gerhard Schroeder, Dutch Prime Minister Jan Peter Balkenende and European Commissioner for Energy Gunther Oettinger.
President Medvedev and Gerhard Schroeder were among the guests
Russian gas monopoly Gazprom said on Wednesday that the first pipe had been laid under the sea.
The pipeline will be passing through Russian, Finnish, Swedish and German waters.
Last month, Nord Stream secured a 3.9bn-euro ($5.4bn; £3.5bn) fund to complete the first phase of the pipeline.
"Debt financing will cover 70% of the project costs while the remaining 30% will be provided by the project shareholders," said Paul Corcoran, financial director of Nord Stream AG.
German companies BASF-Wintershall and E.On Ruhrgas each own 20% of Nord Stream, while Gasunie of the Netherlands holds 9%.
Alexey Bulgakov from Troika Dialog investment bank pointed out that "Gazprom and its partners seem to have managed to raise funds at rather low interest rates."
The overall cost of the project, due for completion in 2012, is expected to reach 7.4bn euros.
The first pipe was laid under the sea on Wednesday
Russia hopes to pump up to 55bn cubic metres of gas a year to EU countries through the pipeline.
Supporters of the project say that it will secure gas supplies from Russia to Europe.
But environmentalists argue that building the pipeline could lead to toxins lying on the sea bed being stirred up, as the Baltic sea is one of the most polluted in the world.
Finland had refused to give the green light to construct the pipeline, but finally agreed to it in February under the condition that ships laying the pipeline do not lay anchor in Finland's economic zone.
The final hurdle was overcome after Russian Prime Minister Vladimir Putin assured Baltic leaders that the project was safe, as extensive research had been carried out into any environmental impact of the pipeline construction.
Apart from the Nord Stream, Russia has been planning another pipeline, the South Stream, which will run from southern Russia to Bulgaria under the Black Sea.
Meanwhile, Turkey, Romania, Bulgaria, Hungary and Austria last July signed an agreement to construct the long-planned 3,300km Nabucco natural gas pipeline.
It is expected to pump up to 31bn cubic metres of gas annually from the Caspian and the Middle East across Turkey and into Europe.