Armed tax police have raided British Council offices in Moscow and eight of its other centres across Russia in a dispute over earnings from English-language teaching.
The move, which is an apparent breach of the council's diplomatic protection, has prompted fears of a major diplomatic row and put a question mark over the future of one of the British Council's three flagship programmes. The others are in China and India.
Coordinated raids on offices from Sakhalin Island to Sochi on the Black Sea appear to have come in response to comments by President Vladimir Putin that non-governmental organisations working in Russia were too keen on serving their own interests.
Lieutenant-General Sergei Veryovkin-Rokhalsky, the head of the Interior Ministry's economic and tax fraud unit, said the council was making "big money" from running English-language courses without paying taxes on its earnings.
The raids took place late last month but were not made public by the Interior Ministry until Monday. They were intended to gather financial documents and information on the council's commercial activities, the Lieutenant-General said.
Lieutenant-General Veryovkin-Rokhalsky said: "If they don't submit the appropriate documents on time, we will fine them. There is no agreement now between Britain and Russia over the activity of this organisation on Russian territory."
But the Interior Ministry said it could not understand how "foreign organisations operate and earn big money" in Russia without paying tax.
The British Embassy said the council worked under diplomatic protection as the cultural wing of the embassy and had raised the issue with the Ministry of Foreign Affairs.
In Moscow, Russian employees manning the council's headquarters reception desk were prevented from alerting senior staff when officers arrived with papers allowing them to search the building and its vehicles and to prevent staff removing documents.
Council officials in London feared that unless the issue was resolved it could block one of its three key operations overseas.
A spokesman said: "Discussions are continuing. On these discussions hangs the future of our work there. We are very concerned by this because we believe our work there is very much in Russia's long-term interests."
Richard Turner, head of press and public affairs at the British Embassy in Moscow, said: "We were surprised and concerned by these actions and are working closely with the Russian authorities to resolve the problem."
Britain and Russia had been working to develop a cultural centres agreement over the past three years to put the council's work on a new footing following the rapid expansion of the organisation's activities and scope in recent years, he added.
President Putin praised the work of the council when he visited Tony Blair last year and in effect endorsed its operations in Russia, Mr Turner said.
The council runs 15 offices from its Moscow headquarters. The raids excluded the council's St Petersburg office - one of only two centres where it teaches the English-language courses.