By Alexei Anishchuk and Andrew Quinn
MOSCOW/WASHINGTON (Reuters) - Moscow on Tuesday angrily rejected allegations by Washington that it had cracked an undercover Russian spy ring but U.S. officials said the Cold War-style cloak and dagger saga would not undermine a thaw in relations.
Prime Minister Vladimir Putin said U.S. police who arrested 10 suspected spies in four cities in the eastern the United States on Sunday had gone "out of control".
"I hope that all the positive gains that have been achieved in our relationship will not be damaged by the recent event," Putin told visiting ex-U.S. President Bill Clinton in Moscow.
An 11th suspect was arrested in Cyprus on Tuesday and freed on bail, police on the Mediterranean island said. The Russian Foreign Ministry said those arrested in the United States were Russians and the charges against them were baseless.
In Washington, administration officials said the case would not set back President Barack Obama's drive to "reset" ties with Russia, one of the signature diplomatic initiatives of his administration.
"I think we have made a new start to working together on things like in the United Nations dealing with North Korea and Iran," White House spokesman Robert Gibbs said. "I do not think that this will affect those relations."
The suspects, some of whom lived quiet lives in American suburbia for years, were accused of gathering information ranging from data on high-penetration nuclear warhead research programs to background on CIA job applicants.
Gibbs said President Barack Obama knew about the spy investigation before he met with Russian President Dmitry Medvedev in Washington late last week, but did not mention it during their talks.
"The choice of timing was particularly graceful," Russian Foreign Minister Sergei Lavrov told journalists sarcastically during a trip to Jerusalem. Other Russian officials also suggested the timing was no coincidence.
"We do not understand what prompted the U.S. Justice Department to make a public statement in the spirit of Cold War espionage," the Foreign Ministry said in a statement.
It said lawyers and diplomats should be given access to the suspects. The U.S. Justice Department said all proper consular procedures were being followed.
With buried banknotes, coded communications and other details, the U.S. accusations echoed spy scandals of the 20th century and the more recent chill in relations with a Kremlin which, under the 2000-2008 presidency of ex-KGB spy Putin, often accused the West of trying to weaken Russia.
Britain and Ireland both said they were checking reports suspects had traveled on false passports from their countries.
Moscow has repeatedly accused Western powers of maintaining spying operations against Russia despite the end of the Cold War. Western powers also complain of Russian activity, especially in the commercial and scientific areas.
"We're moving toward a more trusting relationship. We're beyond the Cold War," Gordon said. "But ...I don't think anyone was hugely shocked to know that some vestiges of old attempts to use intelligence are still there."
U.S. Russia analyst Samuel Charap of the Center for American Progress said the fallout could be contained due to the fact that none of those accused in the case thus far were diplomats and the charges did not include espionage.
But he added that the case exposed lingering distrust on both sides, which could reverberate in the U.S. Senate where the administration hopes to persuade some skeptical Republicans to back the ratify a new U.S-Russia disarmament treaty.
Russian analysts said the timing suggested it was an attempt to undermine improving relations, although Justice Department officials said the arrests were ordered because it was feared one suspect was about to leave the country.
"It's a slap in the face to Barack Obama," said Anatoly Tsyganok, a political analyst at Moscow's Institute of Political and Military Analysis. He predicted Russia would follow Cold War etiquette and uncover an equal number of alleged U.S. spies.
A senior State Department official noted one of the expressions of Russian outrage was from Putin, who was a spymaster in the late 1990s when, according to the allegations, some of the suspected agents were already in place.
"It would have been nice if he'd have thought about that first," the official said.
Tatyana Stanovaya, political analyst at Moscow's Center for Political Technologies, said the accusations could widen a rift in Russia's elite between advocates and opponents of better U.S. ties.
Stanovaya said it could dent the authority of Medvedev, who is struggling to emerge from Putin's shadow and has made engagement with Washington a hallmark of his presidency.
The U.S. Justice Department accused the 11 people of operating as "illegals", meaning agents infiltrated under false identities, rather than officers who use diplomatic or other legitimate cover.
They were accused of collecting information ranging from research programs on small-yield, high-penetration nuclear warheads to the global gold market, and seeking background on people who applied for jobs at the Central Intelligence Agency (CIA), according to criminal complaints filed in a U.S. court.
(Additional reporting by Dmitry Zhdannikov, Amie Ferris-Rotman, Arshad Mohammed and Jeremy Pelofsky; Writing by Conor Humphries and Steve Gutterman; Editing by David Storey)