The agreement was reached at a biannual summit between Russian and the EU - represented by its current president, Danish Prime Minister Anders Fogh Rasmussen - which also touched on Chechnya and the fight against terrorism, both of which have been caused a row between Russian and Denmark over the past two weeks.
For years Moscow and Brussels had been locked in a bitter dispute over free movement for the 950,000 Russian inhabitants of Kaliningrad after the EU enlarges in 2004.
Residents of the desperately poor enclave will then have to travel through new EU member Lithuania to reach the rest of Russia and will thus face tighter border controls.
Putin agreed to a "facilitated transit document" - a multiple-entry visa - proposed by Brussels for Kalingraders who wish to cross Lithuania by road and rail.
"Our experts negotiated until the very last minute," Putin told a news conference. "We are satisfied with the results reached."
Rasmussen said the FTD deal struck the right balance between Russian concerns and those of the EU, including the sovereign right of Lithuania to control its borders.
Lithuanian Foreign Minister Antanas Valionis said on Lithuanian radio that the EU-Russian agreement was "a search for a political compromise" and that the government would assess it and decide whether to support it based upon whether the agreement harms Lithuania's chances to join the Schengen Treaty in 2004.
Valionis and other government ministers are under pressure from conservatives and nationalists not to sign on to any deal that would either impair the country's sovereignty or harm its chances of integrating with Europe.
According to the EU-Russian agreement, the FTD for travel by road and train will be issued by Lithuanian authorities beginning July 1, 2003, "free of charge or at a very low cost."
The EU said it had taken note of Russian demands for visa-free travel via high-speed trains and promised to launch a feasibility study next year in consultation with Lithuania on constructing a suitable rail line.
The EU also promised to review the FTD scheme by 2005, a year after Lithuania, Poland, and eight other countries in Eastern Europe and the Mediterranean are due to join the bloc.
Although the watershed agreement on Kaliningrad
should have highlighted the Brussels summit, the Chechen crisis kept returning to the limelight.
The summit was nearly canceled when Russia reacted furiously to the Danish government allowing a conference of Chechen exiles to be held in Copenhagen just days after the Moscow theater siege last month.
The meeting was hastily switched to Brussels, seen as neutral ground.
Rasmussen, whose talks with Putin on Chechnya were described as "business-like" said the conflict was not just about terrorism. "A political solution is the only way to a lasting peace," the Danish premier said.
Still, tempers ran high beneath the surface and finally burst at a final press conference.
When asked by a French reporter on Nov. 11 why Russia was using mine warfare in the separatist republic and "exterminating" Chechen civilians, Putin lashed out at the reporter.
"If you are prepared to become a radical Islamist and undergo circumcision, I invite you to Moscow," said Putin. "We have specialists who can deal with this problem. I suggest that you have an operation so radical that nothing grows out of you again."
The remarks were reportedly not translated into English at the conference but have been verified by multiple sources and even splashed upon the headlines of nearly all Russian-language dailies.
Clearly sensing the potential for damage, Kremlin officials explained to reporters that Putin had been tired after a hectic summit schedule when he made the comment.
A leading political analyst, Andrei Piontkovsky, noted that Putin's language was becoming "pathological."
"Every time he talks about Chechnya he resorts to toilet vocabulary. This tendency is starting to disturb not only his Western partners but also the Moscow elite," said Piontkovksy.