The cutoff announced late Wednesday by Gazprom CEO Alexei Miller threatened a replay of a January 2006 faceoff, when a halt in Russian gas shipments to Ukraine during a similar dispute resulted in a brief reduction of supplies to Europe.
Ukraine made a late-hour appeal for a return to negotiations. The Ukrainian president's energy adviser, Bohdan Sokolovsky, said a note was delivered to a Russian diplomat in Kiev asking Russia not to turn off the gas and expressing hope an agreement could be reached in the coming days.
Sokolovsky also said Ukraine would guarantee the delivery of gas to Europe.
"Whatever Russia ships we will deliver," he said. "This is what we have committed to."
Gazprom had warned it would cut supplies unless Ukraine paid off all of its debt and signed a deal for 2009 deliveries by midnight. Neither was done, Miller said.
"Gazprom will cut off 100 percent of gas supplies to Ukrainian consumers at 10 a.m. (2 a.m. EST) on Jan. 1," Miller told reporters. "All responsibility for the situation rests on the Ukrainian side."
His statement reflected the extremely strained relations between the two former Soviet republics. Ukrainian President Viktor Yushchenko has angered Moscow through his efforts to win NATO membership and his support of another former Soviet state, Georgia, in its August war with Russia.
The situation is further complicated by an open conflict between Yushchenko and Ukraine's prime minister over energy policy and relations with Russia, among other issues.
Ukraine's gas company, Naftogaz, said it paid $1.5 billion to cover the debt owed Gazprom, but Miller said his company had not yet received the money. The amount also was short of the $2.1 billion that Gazprom says Ukraine owes for gas supplies and fines for late payment.
The $1.5 billion was paid Tuesday to Rosukrenergo, a Russian-Ukrainian gas trader based in Switzerland that is half owned by Gazprom. It was not immediately clear why the money had not been transferred to Gazprom.
"This is an issue of Gazprom's dealings with Rosukrenergo," said Naftogaz spokesman Valentyn Zemlyansky. "Naftogaz has fulfilled all its obligations." He repeated Ukraine's insistence that this money covers the entire debt.
The other stumbling block was the failure to sign a contract for 2009 gas deliveries.
Gazprom had first insisted that Ukraine pay $418 per 1,000 cubic meters of gas in 2009, more than double what it paid the previous year. But on Wednesday, Gazprom offered a contract at $250, which Ukrainian officials said was still too high.
Ukraine has been crippled by the global financial crisis. Russian Prime Minister Vladimir Putin acknowledged this Wednesday, saying Gazprom would be selling the gas at a loss at $250 but was willing to do so because Ukraine was a "brotherly nation" and "in a far worse situation" than Russia.
While Gazprom's European customers now pay the higher price, the cost of gas is expected to fall sharply in coming months as a result of the steep drop in the price of oil.
Naftogaz had said Ukraine would agree to the $250 price if Gazprom agreed to pay a higher transit fee for shipping gas across Ukraine to other European buyers, a condition Gazprom refused to accept.
Associated Press writer Maria Danilova in Kiev contributed to this report.