VW has said its plans to build cars in the Russian market have been put on hold after government leaders of Russia and Germany failed to close an agreement on the project.

German chancellor Gerhard Schroeder and Russian president Vladimir Putin had been expected to approve the project when they met in northern Germany on Tuesday, but VW said the deal was not done.

VW said it was still considering assembling cars in Russia from imported components, but added it remained unclear when this might happen.

The goal of the joint venture was to begin assembly of VW Bora and Skoda Octavia models next year and from 2007 add the VW Polo.