Defeated candidate Yulia Tymoshenko "will never recognise" the victory of pro-Russian rival Viktor Yanukovich in Sunday's Ukrainian presidential election, a local newspaper reported on Tuesday.

Official results gave ex-mechanic Yanukovich a three-point margin of victory over Orange Revolution co-leader and Prime Minister Tymoshenko. International monitors said the election was fair but the premier has so far refused to concede.

"I will never recognise the legitimacy of Yanukovich's victory with such elections," the Ukrainska Pravda daily cited Tymoshenko as telling a meeting of her party on Monday evening.

Tymoshenko had instructed her lawyers to prepare to contest the results in court, the newspaper's website reported.

Tymoshenko's office could not immediately be reached for comment on the report. The premier was due to give a news conference later on Tuesday.

There was no mood in the snow-bound capital Kiev for a repeat of the 2004 street protests co-led by Tymoshenko which overturned a previous Yanukovich victory in an election later declared fraudulent.

But a legal challenge to the narrow margin of victory -- 2.9 percent with 98.8 percent of votes counted -- could deny Ukraine a swift return to stability and rattle financial markets.

The country of 46 million people has been battered by the economic crisis and badly needs to restart talks with the International Monetary Fund on a $16.4 billion (10.4 billion pounds) bail-out package derailed by breached promises of fiscal restraint.

Tymoshenko cannot catch up with Yanukovich in the vote-count. Just 734,000 votes sep arated the two sides, in a vote that underscored Ukraine's deep divide.

As votes trickled in on Sunday evening, the 49-year-old former gas tycoon cried fraud but backed away from an earlier threat to call people out onto the streets.

"The temptation will be there for (Tymoshenko) to make a challenge," said Andrew Wilson, a senior policy fellow at the European Council on Foreign Relations.

But monitors declared the election an "impressive display" of democracy and urged a peaceful transition of power. There were no serious irregularities, they said.

Western investors and Ukraine's powerful neighbour Russia reacted cautiously to the victory of Yanukovich, whose party is allied to the Kremlin's United Russia.

Prolonged uncertainty over the outcome could further hurt Ukraine's sickly economy and delay the resumption of much-needed bail-out cash from the International Monetary Fund.

The official result signalled a remarkable comeback for Yanukovich, who tapped widespread disillusionment with the Orange Revolution democracy movement that delivered years of infighting instead of prosperity and stability.

A close Yanukovich aide said there were no back-stage contacts with Tymoshenko to strike a deal on a future alliance.

Yanukovich will instead be seeking to forge a coalition to get his own ally into the key role of prime minister, which could require support from the Our Ukraine faction of outgoing President Viktor Yushchenko. That is far from certain.

However, Yanukovich may need only some of the Our Ukraine faction to secure a workable majority.

Failure would force fresh parliamentary polls -- possibly as early as June although autumn is more likely -- but Yanukovich appears reluctant to call fresh polls for fear of voter fatigue.