Russia's threat to aim weapons at Europe if the US sets up a missile shield was "unwelcome", Nato has said.
The US says it wants missile defence in eastern Europe to counter threats from states like Iran and North Korea.
It aims to build parts of the system in Poland and the Czech Republic, where US President George W Bush has arrived for talks ahead of this week's G8 summit.
On Sunday, Russian President Vladimir Putin said Iran was not a threat to the US, hinting that Russia was the target.
His words sparked concern in the West, with new French President Nicolas Sarkozy saying he would have "frank" talks with Mr Putin on the issue.
And Nato spokesman James Appathurai went further, saying Russia was "the only country speculating about targeting Europe with missiles".
"These kind of comments are unhelpful and unwelcome."
Mr Putin's spokesman has since attempted to soothe the row, describing the Russian leader's comment as a "hypothetical" response to a "hypothetical" question.
President George W Bush has now arrived in Prague for talks ahead of the G8 summit in Heiligendamm, Germany.
Several hundred protesters took to the streets as Mr Bush arrived in Prague, denouncing the US leader and stressing their opposition to the missile defence scheme.
Some echoed the concerns of a previous era.
"We had Russian troops here for more than 20 years, and I was against that, too," Karel Janko, 63, told the Associated Press news agency.
Washington wants to deploy interceptor rockets in Poland and a radar base in the Czech Republic to counter what it describes as a potential threat from "rogue states" such as Iran and North Korea.
Speaking in the way to Europe, Mr Bush's national security adviser also said Mr Putin's remarks were "not helpful".
Riot police are out on the streets of Prague for Mr Bush's visit
"We would like to have a constructive dialogue with Russia on this issue," Stephen Hadley said.
Mr Bush is due to deliver a major speech on democracy and freedom in Prague on Tuesday.
Though US officials say the address is not about Russia, the president is expected to highlight concerns about the Kremlin's tightening grip on power.
Mr Putin issued his warning in an interview with foreign reporters ahead of the G8 meeting.
"If the American nuclear potential grows in European territory, we will have to have new targets in Europe," Mr Putin said.
Russia has tested a new ballistic missile to restore 'strategic balance'
He said neither Iran nor North Korea had the weapons that the US was seeking to shoot down.
"We are being told the anti-missile defence system is targeted against something that does not exist. Doesn't it seem funny to you?" he asked.
Mr Putin said Washington had "altered the strategic balance" by unilaterally pulling out of the anti-ballistic missile (ABM) treaty in 2002.
He hoped US officials would change their minds about the missile plan, and said that if an arms race resulted it would not be Russia's fault.
Last week, Moscow announced it had tested a ballistic missile to maintain "strategic balance" in the world.
Mr Putin and Mr Bush are scheduled to meet at what correspondents predict is likely to be a stormy G8 summit.
Both the new French President, Nicolas Sarkozy, and British Prime Minister Tony Blair said there was a need for a dialogue with Russia.
"Europe as a whole does have concerns and will not be shy in expressing those concerns," said Mr Blair's official spokesman.