REUTERS - Russian President Vladimir Putin said on Friday any retaliation against U.S. sanctions must not hurt the Russian economy or partners that do business in Russia, signaling that a package of counter-sanctions measures being prepared may be watered down.

In response to a new round of U.S. sanctions on Russian businesses, Russian lawmakers are debating legislation that would make it a crime punishable by jail for a Russian citizen to comply with the U.S. measures.

Russian and foreign business lobbies say the proposal, if it becomes law, would effectively force firms to choose between doing business with Russia and having dealings with the rest of the world.

Putin, speaking at a news briefing after talks with German Chancellor Angela Merkel, warned such measures could undermine foreign investment in Russia.

“Of course it should be balanced,” Putin said, referring to the legislation.

“It must not do harm to our own economy and to those of our partners who with good conscience do business in Russia. I am confident that is how it is going to be,” Putin said.

Lawmakers who suggested treating compliance with western sanctions in Russia as criminal offence were guided by “emotional considerations,” Putin said.

Facing fierce criticism over the bill, Russian lawmakers this week put off a second reading of the bill pending consultations with business groups scheduled for May 23.

The draft, in its current form, makes it a crime punishable by up to four years in jail to refuse to supply services or do business with a Russian citizen, citing U.S. or other sanctions.

The legislation must pass a third reading, before being approved by the upper house of parliament and signed by Putin.

His views on the legislation are likely to have a direct bearing on the contents of the bill because parliament is dominated by his allies.