The Georgian government broke off diplomatic relations with Russia on Friday, and Russia responded by doing the same.
It marks the first time since the collapse of the Soviet Union that Russia had severed formal diplomatic ties with one of the 14 other autonomous republics that became independent states in 1991.
It was also a sign of ripples still being felt in post-Soviet politics after the war earlier this month over the breakaway Georgian regions of South Ossetia and Abkhazia.
Adding to the tension, a lawmaker in South Ossetia said Friday that Russia intended to eventually absorb the province at the center of the war that broke out August 7 when Georgia sent troops into South Ossetia to wrest back control from separatists, prompting Russia to send in hundreds of tanks and troops.
The countries will retain consular offices on each other's territories, handling such matters as issuing passports and assisting their citizens with legal affairs, but the political ties will now be handled through intermediaries, a spokeswoman for the Georgian Foreign Ministry said.
Georgia is now in talks with several countries that may assume the role of representing Georgia in Moscow, the spokeswoman said, as, for example, the Swiss Embassy in Tehran represents US interests in Iran, a country the United States has no diplomatic relations with.
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By Damien McElroy in Gori
Russian-backed paramilitaries have systematically burned and looted Georgian villages inside South Ossetia, according to victims and satellite pictures released by the United Nations.
The images, obtained by Human Rights Watch, show the wholesale destruction of five villages near the breakaway region's capital, Tskhinvali. But witnesses have told the Daily Telegraph that South Ossetian militias are conducting a much wider campaign, targeted on the local Georgian population.
People who have fled the five villages, where a total of 606 buildings were burned to the ground or severely damaged, say the area was being cleared to create an airstrip. "I don't think I will ever return," said Makvala Mindiashvili from Tamarasheni village, where satellite images show that 177 homes and other buildings were burned down. "They told me the villages, not five but nine in all, would be destroyed to create an airstrip for the Russians."
A Russian news agency yesterday reported that Moscow will sign a deal to position military bases in South Ossetia, perhaps as soon as Tuesday. The aim is to establish a buffer zone around the enclave's southern border. According to the UN High Commission for Refugees, 2,300 Georgians have been forced to flee this area.
"Recent returnees have told us that there is intimidation, beating and house burning by irregular militias," said Peter Kessler, a UNHCR spokesman. "In the buffer zone clearly there is a lack of policing at the very least. Ethnic Georgians are fleeing because they fear for their lives."
The lush valleys are most terrifying at night when armed men roam the villages. The groups are led by South Ossetian fighters loyal to the Moscow-backed regime. Victims say they include Russians along with Chechen and Cossack mercenaries.
Nicholoz and Sonia Choladze lived in the village of Zemoachbeti until it was raided and largely destroyed on Aug 22. Seven men burst through the vine trellis into their home. They stroked Mr Choladze's neck with the blunt end of a machete before vandalising the family's possessions.
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