MOSCOW Media tycoon Vladimir Gusinsky is reported by AFP as having suffered a major setback on Friday in his long-running battle with Russian prosecutors when a Moscow appeal court overruled a verdict that embezzlement charges against him were illegal.

Supporters of the prominent Kremlin critic immediately denounced the decision as "absurd" and warned they were already drafting a further appeal to Russia's Supreme Court and to the European Court of Human Rights if necessary.

But Alexander Gorbunov, head of the Serious Crimes Department at the General Prosecutor's Office, hailed the Moscow city court ruling, telling reporters: "We can assert that in this case the law has triumphed."

Gusinsky, 48, whose Media-Most empire is the biggest independent media group in Russia, is currently under house arrest in Spain awaiting a Madrid decision on whether to extradite him to Russia.

Gusinsky is accused of embezzling more than 300 million dollars from the Gazprom natural gas monopoly, which is Media-Most's largest shareholder and creditor.

His supporters argue the case against him is politically motivated.

Media-Most immediately denounced Friday's overruling as an "absurd decision" and said it would take its appeal to Russia's Supreme Court.

"Unfortunately we had already predicted the outcome. It was clear the authorities exerted pressure on the Moscow court," Media-Most spokeswoman Yelena Bruny told AFP.

"We are ready to go as far as the European Court of Human Rights if need be," another Media-Most spokesman, Dmitry Ostalsky, told the Interfax news agency.

He criticized the speed at which the court had arrived at its verdict, saying Russian prosecutors had only lodged their appeal on December 29, and adding: "Given the abundance of days-off and holidays, this is actually the third working day since then."

Media-Most, which owns NTV, the only nationwide television station in Russia, has been a constant thorn in the side of President Vladimir Putin's year-old administration.

Gusinsky has been hounded by Russian investigators for much of the year after his respected newspaper, radio and television holdings took a critical view of Putin's military campaign in the rebel Republic of Chechnya.

He was briefly jailed over the summer on fraud charges that were quickly and inexplicably dropped after his arrest sparked condemnation around the world about the state of press freedoms in Russia.

The United States has warned the Kremlin that it is following developments in Gusinsky's case amid heightened fears that Putin is seeking to muzzle his critics in the media.

Gusinsky was detained by Interpol in Spain on December 13 after Russian prosecutors issued an international warrant for his arrest.

But a Moscow municipal court later ruled that prosecutors had no basis to charge Gusinsky with embezzlement because they had no evidence proving the tycoon was avoiding paying off his debts.

Media-Most and Gazprom recently agreed a debt-for-shares swap that has temporarily solved Gusinsky's debts to the state-dominated natural gas giant.

The ******Sevodnya****** daily, which is part of Gusinsky's empire, reported last week that Putin had signed a decree ahead of the appeal court ruling appointing a new president of the court that was to hear the case.

Media-Most spokesman Ostalsky noted that the new court chief was appointed on the same day that the prosecutor's office filed its appeal against the Gusinsky verdict, even though the post had been vacant for more than 18 months.

"If you recall the direct threats of certain representatives of the Prosecutor General's Office against the judges, the pressure the judges experienced becomes evident," he told Interfax. 15-29-18.J16