Mr Putin signed a decree citing "exceptional circumstances" affecting security as the reason for the move.
Russia has been angered by US plans to base parts of a missile defence system in Poland and the Czech Republic.
The 1990 Conventional Forces in Europe Treaty (CFE) limits the number of heavy weapons deployed between the Atlantic Ocean and the Urals mountains.
The Russian suspension will become effective 150 days after other parties to the treaty have been notified, President Putin's decree says.
The suspension is not a full-scale withdrawal - but it means that Russia will no longer permit inspections or exchange data on its deployments.
Russia's Deputy Foreign Minister Sergei Kislyak said Moscow was not "shutting the door to dialogue".
"We have submitted to our partners proposals on ways out of the situation. And we continue to wait for a constructive reaction," Mr Kislyak said.
But a Nato spokesman said the alliance "regretted" Russia's decision.
"The allies consider this treaty to be an important cornerstone of European security," James Appathurai said.
He added that the move was "a disappointing step in the wrong direction".
Russia's suspension of its application of the treaty is yet another sign of a worsening relationship between the US and Russia, says the BBC's diplomatic correspondent, Jonathan Marcus.
An informal meeting earlier in July at the Bush family's Maine home seems to have done very little to improve ties between the two leaders, he says.
It is also yet one more sign of a more assertive Russian foreign policy, our diplomatic correspondent says.
The CFE agreement of 1990 was one of the most significant arms control agreements of the Cold War years.
It set strict limits on the number of offensive weapons - battle tanks, combat aircraft, heavy artillery - that the members of the Warsaw Pact and Nato could deploy in Europe, stretching from the Atlantic to the Urals.
In the wake of the collapse of communism, the treaty was revised in 1999, in part to address Russian concerns.
But this revised treaty has never been ratified by the Nato countries who want Russia to withdraw all of its forces from two breakaway regions with Russian-speaking majorities - Abkhazia in Georgia and Trans-Dniester in Moldova."The CFE treaty and missile defence are the two major irritants between Russia and the West. It would have been easy, it still is easy, I think Nato allies feel, to move closer to ratifying the CFE treaty," the Nato spokesman added.