The Russian president's remarks, made as he visited Kiev, highlight an ongoing tug-of-war Moscow has with Brussels over Ukraine's moves to seek closer ties with the EU.
In Ukraine to celebrate the 1025th anniversary of the arrival of Christianity in what was once known as Kievan Rus, a vast territory comprising modern-day Ukraine and Russia, Putin said the two majority Orthodox neighbours should further integrate economically.
"Intense competition is going on now in global markets, for global markets," Putin said after talks with Ukrainian President Viktor Yanukovych.
"Only by joining forces can we be competitive and win in this rather tough competitive fight."
"We have every reason to believe that we can and must do it," he said.
However he added that Russia would "respect whatever choice the Ukrainian people and the Ukrainian state will make".
The religious festivities come ahead of a November summit in Vilnius that could see the European Union sign a landmark trade agreement with Ukraine.
This would open up EU markets for Ukrainian exports. At the same time, the Kremlin has been pushing Kiev to join a Russian-led customs union.
In talks with Yanukovych, Putin said Russia was determined to forge a closer partnership with Ukraine, noting the two countries were facing "major, complex" problems.
Yanukovych said the two countries had "lots of mutual interests".
The talks were seen as a last-ditch effort by Putin to persuade Yanukovych to drop plans for closer ties with the European bloc.
The agreement with Brussels has been repeatedly postponed after a Ukrainian court jailed former prime minister Yulia Tymoshenko for seven years in 2011, triggering a dramatic deterioration in ties and making Kiev more vulnerable to the Kremlin's advances.
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