MOSCOW, July 22 (Reuters) - Alexei Kudrin, a former Russian finance minister and loyal ally of President Vladimir Putin, warned on Tuesday that anti-Western rhetoric during the Ukrainian crisis could isolate the nation and derail its modernisation.
In rare high-level criticism of growing Kremlin conservatism, Kudrin said Moscow should not intervene militarily in the rebellion in eastern Ukraine and expressed dismay that Russians were as once again becoming adversaries of the West.
Surrounded by his top security advisers, Putin dismissed on Tuesday Western criticism of Russia's role in Ukraine and vowed to protect the economy from "external threats" and strengthen its military muscle to counter moves by NATO in eastern Europe.
But Kudrin, who repaired state finances after the chaos of the 1990s, told ITAR-TASS news agency that Russia risked taking a dangerous path internationally.
"There are forces in the country who have long wanted to distance us, who have wanted isolation, perhaps some kind of self-reliance," he said. "All this has fallen onto fertile ground and I'm just surprised at the scale of the anti-Western rhetoric which has emerged here."
The United States and European Union imposed sanctions on companies and people close to Putin after Russia annexed Crimea from Ukraine in March.
The annexation strongly boosted Putin's popularity at home. But relations with the West, already at their lowest since the Cold War, dived yet further after a Malaysian airliner was shot down over eastern Ukraine last week with the loss of 298 lives.
Washington says it has strong evidence of Russian complicity in the disaster, which it believes was caused by a missile fired from territory controlled by pro-Moscow rebels. In the growing confrontation, the Kremlin has denied the accusations and blamed the Ukrainian government.
"The political landscape in our country has changed significantly," Kudrin, 53, told the state-run news agency. "We have again become the West's adversaries."
Kudrin, who quit in 2011 in protest against rising military spending, helped the state to amass more than $160 billion in two funds that now serve as a contingency plan for a financial crisis. Russian stocks and the currency spiralled down last week after Washington imposed more sanctions on some top companies.
Kudrin, who now heads a group called The Committee for Civil Initiatives, warned that businesses and ordinary people were paying the price of the standoff. "Businesses want to work, invest, build factories, trade," he said. "And business is very concerned by what it hears on the radio or sees on the TV."
A further escalation of the Ukrainian conflict would bring more sanctions that could cost ordinary Russians about a fifth of their income, he warned, due to a falling rouble and rising inflation. "Figuratively speaking, it is as if we agreed to give up 15-20 percent of our salaries," he said.
More than $70 billion in capital flowed out of Russia in the first half of this year.
"Russia in no way should interfere with military forces in the situation in east Ukraine. This would cause uncontrolled risks on both, the economic and political levels," Kudrin added.
European Union governments are to discuss a specific list of possible new targets for sanctions on Thursday.
"I have serious concerns that the escalation of the conflict around Ukraine will be followed by conclusions ... that we do not need the world's best practices," said Kudrin. "Such an attitude, of course, inhibits seriously the modernisation of Russia." (Writing by Lidia Kelly; editing by David Stamp)