He rejected claims that the Shanghai group - which focuses on security issues and economic cooperation - was emerging as a rival military bloc to the Western-led North Atlantic Treaty Organisation (NATO).

"It's not a military bloc, it's open to all," he said.

"There's a feeling of alarm that Russia and China are combining forces. But this organisation is open. There's nothing covered up," Putin said.

The Shanghai group had been a "good instrument" after the fall of the Soviet Union for settling border demarcation questions that had remained unresolved for decades, he said.

"It was a good instrument for solving them and became a good way for solving other problems. It was a natural process," Putin said.

In addition to China and Russia, the SCO also comprises Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Iran, Pakistan, India and Mongolia are observer nations of the SCO.

Putin also reiterated his optimism that a recent set of Western proposals to Iran aimed at resolving the standoff over Tehran's nuclear programme would ease tensions.

"It's a real move forward thanks to the six countries who sought a solution and thanks to Iran which didn't reject the proposals," Putin said of the deal put forward by Britain, China, France, Germany, Russia and the United States.

Putin, who met here with Iranian counterpart President Mahmoud Ahmadinejad on Thursday, also said that Moscow hoped to create a joint venture with Tehran on exploiting natural gas reserves in the two countries.

"We're talking about getting a Russian deposit and an Iranian deposit and creating a joint venture. It is only an idea for now, not worked out at a technical level," he said.

Asked about recent polls suggesting that most Russians would support a change in the constitution to allow Putin to stand for a third term in 2008, the Russian leader rejected the idea, echoing earlier comments he has made on the subject.

While such polls were "objective", such a constitutional change would undermine public faith in Russia as a rules-based society, he said.

"I thank our citizens who think I have the right to stay" beyond 2008. But "you can't ask others to observe the law if you break it yourself," Putin said.

The Russian leader was due to leave Shanghai later Friday bound for Kazakhstan, where he was to participate in another regional forum.