"NATO is stepping up its aggressive rhetoric and its aggressive actions close to our borders," Putin told lawmakers. "In these conditions we are obliged to dedicate special attention to resolving tasks connected with heightening the defense capabilities of our country."
Last month, Moscow announced it would create three new divisions in its southwest region to meet what it described as a dangerous military build-up along its borders.
The North Atlantic Treaty Organization (NATO) intergovernmental military alliance based on the North Atlantic Treaty signed in 1949, recently announced it would deploy four battalions to Estonia, Latvia, Lithuania and Poland as part of a strategy to deter Moscow from repeating actions such as its annexation of Ukraine's Crimea in 2014.
The organization holds a major summit in Warsaw, Poland in July, which US President Barack Obama is due to attend.
Baltic states unprotected?
Thousands of NATO troops held joint exercises over a 10-day period in Poland in June as part of the largest war games in eastern Europe since the Cold War.
Earlier this year, Obama announced an increased US troop presence in eastern Europe, with continuous rotations of an additional armoured brigade beginning in early 2017.
Russia regards NATO's deterrence plans as hostile, and German Foreign Minister Frank-Walter Steinmeier said NATO exercises in eastern Europe could worsen tensions with Russia.
He warned earlier this week against what he called "saber-rattling and shrill war cries." Vice Chancellor Sigmar Gabriel is due to visit Moscow next week.
In comments reported by the German news weekly "Die Zeit" on Wednesday, Commander of US ground forces in Europe General Ben Hodges said that NATO would currently be unable to protect the Baltics against a Russian attack.
"Russia could take over the Baltic states faster than we would be able to defend them," Hodges warned.
Moscow open to dialogue
Putin also criticized the West for its reluctance to build a "modern, non-bloc collective security system" with Russia.
"Russia is open to discuss this crucial issue and has more than once shown its readiness for dialogue," he told lawmakers. "But, just as it happened on the eve of World War Two, we do not see a positive reaction in response."
Drawing parallels with the 1930s, Putin said there was a danger of failing to oppose the threat of terrorism today, just as there had been a failure to unite against the rising power of Nazi Germany. "The world community did not show enough vigilance, will and consolidation to prevent that war and save millions of lives," Putin said.
"What kind of a lesson is still needed today to discard old and frayed ideological disagreements and geopolitical games and to unite in the fight against international terrorism," he remarked.
Relations between Russia and the West have reached their lowest point since the Cold War following Moscow's annexation of Ukraine's Crimea and its alleged support for pro-Moscow separatist rebels in eastern Ukraine.
Ambassadors from the 28 European Union (EU) member states agreed unanimously on Tuesday to prolong sanctions against Russia until January 2017. The decision still has to be approved by EU ministers or leaders.