Russia's enormous energy wealth is improving its public finances

The repayment will be completed by the end of August, finance minister Alexei Kudrin told the Russian Parliament.

The move - saving Russia $7.7bn in debt servicing costs - comes ahead of next month's G8 summit in St Petersburg.

A default on the debt, built up during the life of the Soviet Union, triggered a Russian financial crisis in 1998.

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Russia is now able to fast-track its debt repayments because of its huge oil and gas wealth.

It has set aside $71.8bn in revenues from oil and gas exports to support its public finances.

The financial gains of repaying the Paris Club are likely to be significant Peter Westin, MDM Bank

Moscow has agreed to pay a $1bn premium on the debt to certain creditors, paving the way for a deal.

Several Paris Club members, including Germany, had previously objected to Russia repaying its debt in one lump sum, because they stood to lose out on annual interest payments up to 2015.

"Before the end of the summer, Russia will no longer be a client of the Paris Club," Mr Kudrin told the upper house of Parliament.

The Paris Club consists of 19 members including the US, UK, France and Japan.

Cue for investment

The move will cut the debt burden inherited by Russia from the Soviet Union by more than 90% to $3bn.

It will still owe Paris Club members $3bn accumulated after the Soviet Union was dissolved in 1991, but its total foreign debt will fall to about $50bn - equivalent to 5% of GDP.

Economists said the move would boost Russia's sovereign credit rating, which could help attract inward investment.

"The financial gains of repaying the Paris Club, even with a premium of $1bn, are likely to be significant," said Peter Westin, chief economist at Moscow-based MDM Bank.