Foreign minister Sergei Lavrov says the US action will not go unanswered
Vladimir Putin has rejected plans to expel US diplomats in a tit-for-tat retaliation against Washington - and instead invited their children to visit the Kremlin.
The surprise announcement from the Russian president comes hours after Foreign Mminister Sergei Lavrov said he would be asking Mr Putin to declare 35 US officials in Moscow and St Petersburg as "persona non grata" - the same number being expelled by the US.
Mr Putin condemned the US action and said Russia had "all the grounds for a comparable response" but added: "We will not create problems for American diplomats. We will not expel anyone."
But he said he reserved the right to retaliate but would wait and see how Donald Trump acts when he succeeds President Barack Obama next month.
The Russian president said he would not stoop to the level of "kitchen irresponsible diplomacy" and even extended an invitation to the children of American diplomats to a festive party at the Kremlin.
His unexpected response comes after President Obama reignited simmering diplomatic tensions with Moscow just three weeks before he leaves the White House.
Mr Obama took action in response to cyber attacks blamed on Russia that disrupted the US presidential election, and claims of harrassment of US diplomats in Russia.
The Kremlin has denied the allegations.
The US has ordered the expulsion of diplomats based in Washington and San Francisco as well as sanctions against Russian intelligence services.
It also plans to shut Russian compounds in New York and Maryland, while the FBI has published wanted posters of alleged Russian hackers.
Mr Putin said the moves were a "provocation aimed to further undermine Russian-American relations" and that he regretted that Mr Obama's administration would end in this way.
The US on Thursday ordered officials at the Russian embassy in Washington and consulate in San Francisco to leave the country within 72 hours, as well as shutting down Russian compounds in New York and Maryland.
Its measures also included sanctions against Russia's GRU and FSB intelligence services - as well as the release of FBI wanted posters for alleged Russian hackers.
Kremlin spokesman Dmitry Peskov said the US wanted to "definitively destroy US-Russia relations which have already reached a low".
He said Russia would "react in an adequate manner based on the principles of reciprocity" but that, with Obama only in office for three weeks, it would refrain from acting like a "bull in a china shop".
Mr Peskov said the allegations against Russia were unfounded.
Maria Zakharova, a Russian foreign ministry spokeswoman, took to Facebook to call the Obama administration "a group of foreign policy losers, angry and ignorant".
The Russian embassy in the UK tweeted: "President Obama expels 35 (Russian) diplomats in Cold War deja vu. As everybody, incl (the American) people, will be glad to see the last of this hapless Adm."
There was also a picture of a duck, with "lame" written across it in large letters.
President Obama expels 35 ???? diplomats in Cold War deja vu. As everybody, incl ???? people, will be glad to see the last of this hapless Adm. pic.twitter.com/mleqA16H8D— Russian Embassy, UK (@RussianEmbassy) December 29, 2016
President Obama said in a statement: "These actions follow repeated private and public warnings that we have issued to the Russian government, and are a necessary and appropriate response to efforts to harm US interests in violation of established international norms of behaviour."
The outgoing president added: "All Americans should be alarmed by Russia's actions. Such activities have consequences."
Mr Obama also said the alleged hacking "could only have been directed by the highest levels of the Russian government".
Mr Trump, who has been dismissive about the hacking claims against Russia, issued a statement saying it was "time for our country to move on to bigger and better things".
However, he added: "In the interest of our country and its great people, I will meet with leaders of the intelligence community next week in order to be updated on the facts of this situation."
Mr Obama took action by amending an executive order issued last year. Mr Trump will be able to reverse that order, should he wish.
Senator John McCain, meanwhile, has questioned whether Mr Trump's nominee to be Secretary of State - Rex Tillerson - is too closely linked to Russia.