PORTOVAYA BAY (AFP) - Russian President Dmitry Medvedev on Friday launched construction of the Nord Stream gas pipeline that will link Russia and Germany via the Baltic Sea and supply the European Union with Russian gas.

• Gazprom begins laying Nord Stream pipeline

Medvedev watched the pipeline being ceremonially welded in the Portovaya bay around 60 kilometres (37 miles) from Vyborg in northeastern Russia.

In an opening speech, he called the launch a "remarkable event," saying the pipeline would assure "energy security" in Europe and "reasonable and acceptable prices."

"The demand for 'blue fuel' in Europe will continue to grow," Medvedev said, referring to gas.

He chalked "Good luck" on the pipeline, decorated with Russian and German flags.

Speaking in a video recorded in Berlin, German Chancellor Angela Merkel, welcomed the project's "enormous economic potential."

The 1,224-kilometre (758-mile) pipeline is set to be built at a cost of 7.4 billion euros (9.9 billion dollars) invested by Russian gas giant Gazprom and its German partners E.On Ruhrgas and BASF-Wintershall.

The pipeline is set to transport 55 billion cubic metres of gas annually to the German city of Greifswald, passing under the territorial waters of Russia, Finland, Sweden, Denmark and Germany.

The aim of the Nord Stream project is to make the European Union less dependent on supplies of Russian gas via Ukraine, which have been interrupted in recent years by repeated acrimonious disputes between Moscow and Kiev.

The European Union receives a quarter of its gas supplies from Russia.

The president of the Nord Stream consortium, former Germany chancellor Gerhard Schroeder, promised the project's environmental impact would be "minimal," citing studies he said cost 100 million euros (134 million dollars).