Putin refuses to expel US diplomats, looks to Trump

The Kremlin strongman's shock decision came after Russia's foreign ministry asked him to send home 35 US diplomats in tit-for-tat retaliation for the expulsion of the same number of its staff by President Barack Obama on Thursday.

"We will not create problems for American diplomats. We will not expel anyone," Putin said in a statement, also inviting children of US diplomats to a holiday party at the Kremlin.

Putin's move was a clear sign that Moscow is pinning its hopes on President-elect Donald Trump to help rebuild ties -- which have plunged to their lowest point since the Cold War -- when he takes office next month.

"We evaluate the new unfriendly steps by the outgoing US administration as a provocation aimed at further undermining Russian-American relations," Putin said.

He said Moscow would plan its next steps "based on the policies pursued by the administration of president Donald Trump", while warning that the Kremlin reserves the right to hit back.

Putin ended his message by wishing both Obama and Trump a Happy New Year and separately congratulated Trump in his New Year's message to heads of state around the world.

- 'Grizzly Steppe' -Obama on Thursday unleashed a barrage of sanctions against Russia over alleged cyberattacks aimed at tilting the election in Trump's favour.

The move came after years of bad blood with Putin that has seen Washington slap sanctions on Moscow over its interference in Ukraine and Syria.

In response to the alleged hacks, dubbed "Grizzly Steppe" by US officials, Obama announced sanctions against Russia's military and domestic intelligence agencies, and gave the 35 suspected "intelligence operatives" 72 hours to leave.

The Kremlin's administration said it is sending a special plane to fly diplomats and their families from the US, following reports they are not able to purchase plane tickets on such short notice.

US intelligence concluded that the Kremlin had ordered a hack-and-release of Democratic Party and Hillary Clinton campaign staff emails in a bid to put Republican real estate mogul Trump in the Oval Office.

Obama's moves have put him at odds with his successor, who has expressed his admiration for Putin and desire to improve ties with Russia.

Moscow has repeatedly denied the hacking allegations and Trump too has questioned whether Russia really tipped the electoral scale, painting Obama's accusations as a thinly veiled effort by a Democratic president to cover up for his party's loss.

Trump said that while he believes the US should "move on to bigger and better things," he would meet intelligence leaders next week for a briefing on the situation.

Obama -- who has also clashed with Trump over his Israel policy in recent days -- has pointedly stated that "all Americans should be alarmed by Russia's actions."

- 'Unprecedented' -It remains to be seen whether Trump would move to roll back the sanctions against Moscow, with many leading Republican lawmakers publicly warning him to stay tough on Putin.

Obama also linked the fresh sanctions to harassment of US diplomats in Moscow, which Washington described as "unprecedented" in the post-Cold War era.

US officials played down the impact that sanctions against the GRU and the FSB could have on intelligence-sharing on issues like counterterrorism, saying cooperation was already limited.

Both agencies will face sanctions, along with GRU agency chief Igor Korobov and three of his deputies.

In addition, the US Treasury hit two individuals, Evgeniy Bogachev and Aleksey Belan, with sanctions for "involvement in malicious cyber-enabled activities."

The sanctions freeze any assets they may have in the United States and blocks US companies from doing business with them.

The US government is also declassifying technical information on Russian cyber activity to help companies defend against future attacks.

"The United States and friends and allies around the world must work together to oppose Russia's efforts to undermine established international norms of behaviour and interfere with democratic governance," Obama said.