Russian President Vladimir Putin laughed off a protest against him by topless women in Germany on Monday, joking that he liked what he had seen while sharply rebuffing German criticism of his human rights record.

Three members of the women's rights group Femen, which has staged protests against Russia's detention of the feminist punk band Pussy Riot around Europe, disrupted his visit to a trade fair in the German city of Hanover focusing on Russian business.

They stripped to the waist and shouted slogans calling the Russian leader a "dictator" before being covered up and bundled away by security men.

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"Regarding this performance, I liked it," grinned Putin at a joint news conference with German Chancellor Angela Merkel, adding that it had helped to promote the trade fair though he suggested that the security men could have been "gentler".

"I did not catch what they were shouting, I did not even see if they were blondes, brunettes or chestnut-haired ... I don't see anything terrible in (the protest), though I think ... it is better to be dressed if one wants to discuss political matters."

Earlier, Kremlin spokesman Dmitry Peskov accused the protesters of "hooliganism" and said they should be punished.

Merkel, who grew up in communist East Germany, said people in a free society had the right to protest.

Putin and Merkel, who also held talks in Hanover on Sunday, want to further boost booming economic ties but the German leader also repeated her concerns about human rights in Russia after raids by Russian authorities on German and other non-governmental organisations based in the country.

A new law on NGOs requires them to register as "foreign agents" if they have foreign funding and are deemed to be involved in politics, something many prominent groups have refused to do on the grounds that they are not acting on behalf of other nations and are not trying to influence Russian politics.

For many, the term evokes Soviet-era oppression and Cold War espionage.

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Putin, a former KGB agent who worked in East Germany in the 1980s and speaks fluent German, denied that the Kremlin was trying to muzzle the NGOs and said Moscow just wanted to monitor the amounts of foreign funding coming into Russia.

"All our actions are connected not with closing and forbidding (foreign-funded NGOs in Russia), but with monitoring financial flows that go to non-governmental Russian organisations which are involved in internal political activity, and this money comes from outside of the country," he said.

"Regarding the freedom of work of these organisations, it is not limited at all. They only have to register."

Putin said nearly 1 billion dollars had flowed to Russian NGOs in just four months since Moscow approved the new law - a figure swiftly queried by NGOs in Moscow.

"The talk of $1 billion is a lie," Pavel Chikov, the head of Agora, a Russian legal aid NGO, said on Twitter.

Merkel reiterated her government's criticism of the clampdown on NGOs, which have included several German foundations.

"This is about NGOs being able to work well and freely ... A lively civil society can only emerge when individuals can operate without fear or worry, of course on the basis of law," Merkel said.

The German chancellor added: "For Germany, Russia is an important strategic partner. We have the most intensive contacts that we would like to continue."