Anthony Blinken (left) and Sergei Lavrov met in Reykjavik on Wednesday – EPA
The Biden administration has waived sanctions on a company building a controversial gas pipeline between Russia and Germany.
The US also lifted sanctions on the executive – an ally of Russia’s Vladimir Putin – who leads the firm behind the Nord Stream 2 project.
The move came in a report on Russian sanctions delivered to Congress by the Department of State.
Critics say the pipeline is a major geopolitical prize for the Kremlin.
The project, which would take gas from the Russian Arctic under the Baltic Sea to Germany, is already more than 95% complete.
The Department of State report notes that Nord Stream 2 AG and its chief executive, Matthias Warnig, a former East German intelligence officer, engaged in sanctionable activity.
But it concludes that it is in the US national interest to waive the sanctions.
The Department of State also imposed sanctions on four Russian ships involved in the building of Nord Stream 2, though detractors said that would not be enough to stop the pipeline.
President Joe Biden has said he opposes the $11bn (£7.8bn) project. His Secretary of State Anthony Blinken said during his confirmation hearing that he was “determined to do whatever we can to prevent that completion” of Nord Stream 2.
What’s the world reaction?
On Wednesday, America’s top diplomat met his Russian counterpart at an international summit in Iceland.
Foreign Minister Sergei Lavrov said Russia and the US had “serious differences”, but should work together “in spheres where our interests collide”.
Mr Blinken said Mr Biden wanted “a predictable, stable relationship with Russia”.
Earlier Kremlin spokesman Dmitry Peskov said reports of the impending US sanctions waiver were “a positive signal”.
And Deputy Foreign Minister Sergei Ryabkov was quoted by the state-run Tass news agency as welcoming “a chance for a gradual transition toward the normalisation of our bilateral ties”.
German officials also welcomed the sanctions waiver as “a constructive step” from the Biden administration.
Foreign Minister Heiko Maas told reporters: “It’s an expression of the fact that Germany is an important partner for the US, one that it can count on in the future.”
But Yuriy Vitrenko, the chief executive of Ukraine’s state-owned energy company, Naftogaz, said Kyiv would press Washington to impose sanctions to stop the pipeline.
Mr Vitrenko said Nord Stream was Russia’s most “dangerous geopolitical project”.
What’s the US political reaction?
The Biden administration’s decision was criticised by a member of the president’s own party, Senate Foreign Relations Committee chairman Bob Menendez.
The New Jersey Democrat said in a statement: “I urge the administration to rip off the Band-Aid, lift these waivers and move forward with the congressionally mandated sanctions.”
He added that he failed to see “how today’s decision will advance US efforts to counter Russian aggression in Europe”.
US congressional Republicans also condemned the waiver.
Jim Risch, the top Republican on the Senate Foreign Relations Committee, said it was “a gift to Putin that will only weaken the United States’ leverage in the lead up to the impending Biden-Putin summit”.
Mr Biden will travel to Europe next month and a potential summit with the Russian president is in the works.
Michael McCaul, the top-ranking House Republican on foreign affairs, said: “If the Putin regime is allowed to finish this pipeline, it will be because the Biden Administration chose to let it happen.”
He added: “It is a Russian malign influence project that threatens to deepen Europe’s energy dependence on Moscow, render Ukraine more vulnerable to Russian aggression and provide billions of dollars to Putin’s coffers.”
When Mr Biden came into office he sought to draw a contrast between himself and his predecessor, Donald Trump, by vowing there would be no more “rolling over in the face of Russia’s aggressive actions”.
But analysts say the US president was reluctant to risk a trans-Atlantic rift with Germany at a time when he has been trying to reach out to European allies.
The sanctions waiver comes after cyber-criminals who the US government says were based in Russia took a major American oil pipeline offline this month, leaving thousands of petrol stations across the US southeast with fuel shortages.
It also comes after Mr Biden was lambasted in January for cancelling the Keystone XL oil pipeline from Canada to the US, citing the need to combat climate change.
That project had been forecast to generate tens of thousands of jobs.