U.S. President Barack Obama and Russian President Dmitry Medvedev sign the new Strategic Arms Reduction Treaty on Thursday in Prague. (Jason Reed/Reuters)

U.S. President Barack Obama and Russian President Dmitry Medvedev signed a landmark treaty in Prague on Thursday that requires both countries to reduce their nuclear arms arsenals.

The two leaders agreed to cut their strategic nuclear warheads by a third and their missiles, submarines and bombers carrying them by more than half, depending on legislative approvals.

After the signing, Obama thanked Medvedev for his co-operation and said the new treaty would help make the world "safer and more secure."

The treaty will also help bring Russia and the United States closer together, Obama said, recalling that Medvedev told him at their first meeting that the two countries had started to "drift" apart.

"When the United States and Russia are not able to work together on big issues, it is not good for either nation, nor is it good for the world," Obama said. "Together, we have stopped that drift and proven the benefits of co-operation."

The arms reduction treaty will shrink the limit of nuclear warheads to 1,550 per country over seven years. A verification system is part of the agreement.

Russia and the U.S, which together own more than 90 per cent of the world's nuclear arms, will still be able to destroy each other several times over. But the pact sends a strong signal that both countries are serious about arms reduction.

'A nuclear weapon in the hands of a terrorist is a danger to people everywhere.'— U.S. President Barack Obama

The treaty also sets the stage for more cuts, Obama said, adding that Russia and the U.S. have agreed to expand discussions on missile defence.

Medvedev said the treaty can only be viable if there's no increase in anti-ballistic missile capabilities. But Medvedev said that, overall, he's satisfied with the pact.

"The result we have obtained is good," he said.

Nuclear proliferation a concern

Obama also addressed the issue of nuclear proliferation, saying nuclear weapons threaten the "common security of all nations."

"A nuclear weapon in the hands of a terrorist is a danger to people everywhere," Obama said, adding that steps must be taken to secure "all vulnerable nuclear material within four years."

He also renewed his call for sanctions against Iran for its nuclear activities, saying the Iranians have "continually failed to meet their obligations."

Diplomats from the U.S., Russia, Britain, France, Germany and China are in New York City for talks about a fourth set of United Nations sanctions to pressure Iran into compliance.

"We cannot turn a blind eye to this," Medvedev said while also suggesting caution. Russia favours only "smart" sanctions that could change behaviour, he said.

For example, Russia would not endorse a total embargo on the delivery of refined petroleum products into Iran, Russia's deputy foreign minister, Sergei Ryabkov, later explained.

But such products may be targeted in other ways, or sanctions on Iran's energy sector could be avoided altogether to avoid running into deal-breaking opposition from Russia or China.

Government leaders from more 47 countries will gather in Washington next week to discuss boosting defences against terrorists seeking nuclear weapons. In May, the White House plans to lead calls for disarmament at the UN during an international conference on strengthening the Nuclear Nonproliferation Treaty.

With files from The Associated Press