Transneft is one of Russia's most powerful companies

Transneft, which carries 93% of Russian oil and supplies much of Europe, is to combine with Transnefteprodukt (TNP) in five months, government officials said.

Analysts say the combined business, to be 75% owned by Moscow, could have more clout internationally.

Critics have accused Russia of using its oil wealth as a political weapon.

'Profitable business'

Russia has had a series of recent disputes with its neighbours, including Ukraine, Georgia and Belarus, about what they should pay for oil and gas imports.

Transneft controls more than 43,000 kilometres of crude pipeline, mostly in Russia, while Transnefteprodukt's oil products distribution network spans 19,000 kilometres, extending to Ukraine, Belarus and Kazakhstan.

In a statement, the Kremlin said the merger would create a "single network of oil and oil products via the pipelines and protect the economic interests of the Russian Federation".

Analysts said the deal was designed to create a goliath in the oil distribution market which could exert more pressure internationally.

"TNP is a very profitable business and, considering the advantageous economics of oil refining in Russia, demand for inexpensive pipeline transportation of refined products is likely to increase going forward," said energy brokers Aton.