Georgia on Monday released four Russian officers whose arrest has angered its giant northern neighbor, but a vengeful Russia pushed ahead with punitive sanctions aimed at dealing a painful blow to the economically struggling Caucasus nation.

The continuing tension offered the latest reflection of Moscow's difficult relations with Georgia, which has defied President Vladimir Putin with a pro-Western stance, still hosts unwanted Russia troops on its soil, and is facing two Russian-backed separatist movements in a corner of the former Soviet Union that could still flare up in new violence.

Georgia's agreement to release the men — days after threatening to put them on trial — appeared to be a capitulation that underscored its vulnerability — but to many Russians, the very fact that the ex-Soviet nation dared detain the men was an affront to Russia's prestige and its ability to project power and influence across an area many Russians still call "the near abroad."

The questions now on the table were how long the sanctions would last, whether Russia would go ahead with plans to withdraw its military presence in Georgia by 2008, and whether the crisis can be ended without new violence in Georgia's separatist regions of South Ossetia and Abkhazia.

CountryWatch: Russia

Russia has granted its citizenship to many residents of the rebel provinces that have enjoyed de facto independence after breaking away in bloody wars in the early 1990s, and separatist leaders have regularly traveled to Russia for meetings with top officials.

Russia's willingness and ability to provide strong backing for the breakaway regions is watched closely elsewhere in the former Soviet Union, whose breakup left a kaleidoscope of similar ethnic groups clamoring for autonomy, independence, or greater links to Russia.

"We won't forgive those who spit at us," the Russian parliament's upper house speaker Sergei Mironov said Monday.

Infuriated by Wednesday's arrests, Russia has put its troops in Georgia on high alert, recalled its ambassador and evacuated its citizens. And even though Georgian officials had announced early Monday that the officers would be handed over to the Organization for Security and Cooperation in Europe and sent home, Russia's transport and communications ministries declared that all air, road, rail, sea and postal links with Georgia would be suspended starting Tuesday.

In an even more crippling blow, Russian lawmakers scheduled debates this week on a new bill that could bar Georgians living in Russia from cabling money home. About 300,000 Georgians are currently living in Russia, according to Russian officials, but some estimates put their number at about 1 million of Georgia's 4.4 million population.

Russia's lower house speaker Boris Gryzlov said Monday that Georgians living in Russia send home an estimated US$1 billion a year. Putin in June put the amount at US$1.5-2 billion annually — a volume comparable to Georgia's state budget.

Monday's sanctions came in the wake of a government session at which Putin denounced the arrests as "state terrorism involving hostage taking" and ordered his top Cabinet members to draw a set of retaliatory measures. "These people think that under the roof of their foreign sponsors they can feel comfortable and secure. Is it really so?" Putin questioned ominously.

Russia's long-chilly relations with Georgia have worsened steadily since President Mikhail Saakashvili came to power following Georgia's 2003 Rose Revolution, vowing to take the country out of Russia's orbit, bring breakaway provinces back into fold and join NATO in 2008.

Saakashvili's course has angered Moscow, which has warily watched the U.S. expansion into what it considered its home turf.

The Kremlin said Putin discussed the situations in both Georgia and Iran with U.S. President George W. Bush in a phone conversation Monday.

Putin underlined "the unacceptability and danger of any actions by third nations that could be interpreted by the Georgian leadership as an encouragement of its destructive policy," the Kremlin said in a statement in an apparent reference to U.S. support for Saakashvili's government.

Russia last week tried to exert international pressure on Georgia by proposing a U.N. Security Council statement expressing grave concern at Tbilisi's actions. But the United States balked — adding to Russian suspicions that it was behind the latest tensions.

Saakashvili said Monday that his nation was handing the Russians over to the Organization for Security and Cooperation in Europe to be flown home even though Georgia has a strong case against them. "It's a very solid case of espionage, subversion and trying to destabilize my country," he told reporters at a briefing.

The four Russian officers released from custody were joined on a flight to Moscow Monday by two other officers sought by Georgian authorities on spying charges, who had been hiding in the Russian military headquarters.

Georgian authorities said the spy ring's alleged chief was involved in a 2005 bombing in the town of Gori that killed three police officers.

"We have seen instigation of violence and direct acts of violence," Saakashvili said, adding that Russia mustn't "behave as a bully and use blackmail, use pressure ... trying to undermine (its) neighbors."

Visiting Belgian Foreign Minister Karel De Gucht, who holds the rotating OSCE chairmanship, urged Russia to respond to the officers' release by restoring transport and postal links.

Despite the tensions, Putin said Russia would stick to a deal signed last year to withdraw its troops from Georgia by the end of 2008.

Along with some 2,500 peacekeepers in breakaway provinces of Abkhazia and South Ossetia, Russia has between 3,000 and 4,000 troops at two military bases in Georgia that it pledged to withdraw by the end of 2008 under a deal signed last year.