Merkel has arrived in the Black Sea resort of Sochi for negotiations with the Russian president.
The meeting will be Putin's sixth with the German leader since she took office in November 2005, and comes during Germany's presidency of both the EU and the Group of Eight leading industrialized nations.
The meeting will address the Nord Stream gas pipeline project and the launch of a new strategic partnership treaty between Russia and the EU, to replace the existing accord when it expires at the end of this year, a Kremlin source said.
The Gazprom-led Nord Stream project includes two parallel legs measuring 750 miles each. The first leg of the pipeline, with annual capacity of 27.5 billion cubic meters, is set to come online in 2010, and the second will double capacity to 55 bln cu m.
International issues to be raised at the Putin-Merkel meeting will include a peace settlement in the Middle East, the international standoff over Iran's nuclear program, and developments in Afghanistan, the Kremlin source said.
