Putin Says West Seeking to Undermine Russia, Crimea 'Sacred'

President Vladimir Putin on Thursday accused the West of exploiting the Ukraine crisis to undermine an increasingly confident Russia, and said Crimea was "sacred" to Moscow.

In his annual state-of-the-nation address, Putin said Russia was justified in its stance on Ukraine but that Moscow would not sever ties with the West despite confrontation with Brussels and Washington.

The address delivered in an ornate Kremlin hall to hundreds of dignitaries, lawmakers and officials offered few signs that the Russian strongman was about to budge under pressure from Western sanctions.

As in times past, Putin sought to push his supporters' emotional buttons, citing everything from Russia's victory over Hitler to "national pride" and working the occasional vulgarity into his most significant policy speech of the year.

"Under no circumstances are we going to scale back our ties with Europe (or) America," he said.

But in the same breath he accused Russia's enemies of seeking to force the "collapse and dismemberment" of Russia as happened in the former Yugoslavia.

The West "would have thought up some other excuse to contain Russia's growing possibilities", failing the tension in Ukraine, Putin said.

"Every time someone believes Russia has become too strong, independent, these instruments get applied immediately," he added, referring to sanctions.

He dismissed Russia's troubles as the economy slides into recession under the burden of Western sanctions and falling oil prices.

"We are ready to take up any challenge and win," said Putin, who still enjoys sky-high ratings triggered by the seizure of Crimea from Ukraine in March.

But in a sign that Moscow is girding for a protracted political battle with the West, he said Russia over the next few years must start producing local replacements for imported foods and medicines.

Employing hugely emotive language, Putin insisted Crimea had a "sacred" historical significance for Russia, comparing it to the Temple Mount in Jerusalem.

"That is how we will treat this," Putin said. "From now and forever."

The tension in southeast Ukraine "fully confirms the accuracy of our stance," Putin said, noting the West did not take Moscow's interests into account and had told Russia to "get lost."

Kiev and the West have accused Russia of sending in troops to buttress separatists fighting the authorities in eastern Ukraine, where more than 4,300 people have died since April. 

The Kremlin has denied the claim.

Moscow will not get sucked into a new arms race, Putin added, but insisted Russia's "formidable" army was ready to deflect any attack.

In a fresh blow to Putin's pledges to root out a bloody insurgency in the North Caucasus, gunmen in Chechnya killed 10 police and injured nearly 30 when they stormed several buildings in the capital Grozny, just hours before Putin's address.

Putin reeled off a number of economic measures aimed at improving conditions for business such as an amnesty for capital returning home and reducing red tape.

He also demanded that officials take action to halt the ruble collapse and "discourage the so-called speculators from trading on the fluctuations of the Russian currency."

Many economists are fretting over the country's economic outlook and the authorities' apparent reluctance to change tack over Ukraine as the economy heads into recession.

On Monday, the ruble suffered its biggest one-day fall since the 1998 financial meltdown after oil prices sank further.

The ruble has declined by 60 percent against the dollar this year, and is down by some 45 percent against the euro.

Many observers said the speech offered few genuine recipes for how to deal with the crisis. 

It also did little to stop the currency's further slide in afternoon trading.

"The address had merely a therapeutic effect," Nikolai Petrov of the Higher School of Economics told Agence France-Presse.

"This is not an answer to the very serious situation in which the Russian economy has found itself."

Others said Putin's economic proposals were merely well-intentioned declarations heard before.

"That ship has sailed," wrote political commentator Georgy Satarov. "The economic situation is not just bad. It is tragically horrible."