The Russian President Dmitry Medvedev said that his country would place missiles in the Baltic region of Kaliningrad in response to US missile defence plans.
In a move that will reawaken Cold War memories, Mr Medvedev, making his first state of the union address only hours after the victory of Barack Obama, used tough rhetoric, attacking the United States for its role in the war in Georgia, the financial crisis and accusing it of moving aggressively against Russia.
"We have got the clear impression that they are testing our strength," Medvedev said in an 85-minute speech to parliament that was interrupted more than 50 times by applause.
The short-range Iskander missile would be deployed in the enclave, between two EU states, Lithuania and Poland, after Russia's warnings that the US plans for a defence system in Poland and the Czech Republic were a threat to Russia's security. Russia would also station equipment that would electronically hamper the proposed defence systems.
Moscow has previously accused Washington of betraying promises made by the President George Bush Snr not to expand Nato. Mr Medvedev called it a "relentless expansion". Russia-US relations have not been good as a financially resurgent Russia reasserted itself, but ties reached a new low after the Russia-Georgia war when Russia invaded Georgia after its southern neighbour attacked its rebel republic South Ossetia, killing Russian peacekeepers and hundreds of civilians.
Mr Medvedev said the war "was, among other things, the result of the arrogant course of the American administration, which did not tolerate criticism and preferred unilateral decisions". The Russian President also laid much of the blame for the world financial crisis on the US. Russia's stock market has fallen more than 70 per cent and oligarchs have lost $230bn (£140bn), Bloomberg reported.
The Russian President went on: "There is a need to create mechanisms to block those decisions made by some members of the world community that are wrong and sometimes just dangerous." This was a clear reference to the United States.
Mr Medvedev also proposed extending the Russian presidential term to six years and parliamentary term to five years, moves he said would help implement reform. Instead, they will probably raise more doubts in the West about the President's commitment to democracy and whether he is smoothing the way for the Prime Minister, Vladimir Putin, to return to power.
Mr Putin, who led Russia during a record period of economic growth and ebbing civil liberties, has remained a commanding figure since he left office. He has far more powers than any prime minister before him and many believe Mr Medvedev is a stop-gap figure.
Despite the rhetoric, Mr Medvedev said Russia was not anti-American and he hoped the new administration could help improve ties. "I would like to stress: we have no problems with the American people," the President said. "We have no innate anti-Americanism."
Russia is facing mounting economic problems. With the rouble under pressure and the price of oil sinking, Russia's huge reserves saved under the oil boom are starting to shrink and Russians are becoming more nervous about the economic future.