Moscow has said the US Patriot missile system in Poland and Romania could be tailored to shoot missiles at Russia.
But he said that although Russia must strive to develop a new and modern army it would not be drawn into a new arms race or aspire to be a "world policeman" and instead be creative.
Speaking to an assembly of Russia's top military brass, Putin slammed the National Security Strategy unveiled earlier this week by Donald Trump, and condemned "offensive" NATO activity in Europe.
"In diplomatic terms, it has an obviously offensive character, and if we were to use military language, it is obviously aggressive," Putin said of the 'America First' strategy. "We must take this into account during our practical work."
"Let's call things by their name, concerning Europe, infrastructure being created there is offensive infrastructure," he said.
He accused the US of violating the Intermediate Nuclear Forces (INF) Treaty dating from 1987 which eliminated all nuclear and conventional missiles with short and intermediate range.
Moscow has said the US Patriot missile system in Poland and Romania could be tailored to shoot missiles at Russia. Washington has also accused Moscow of violating the treaty.
"Launching systems for air defence missiles can become systems for intermediate range cruise missiles at any moment," Putin said. "The US is on its way to destroying the INF treaty."
"We have the sovereign right to react adequately and timely to such potential threats," Putin said, asking the senior officers to adapt Russia's strategy if needed.
The Kremlin previously denounced the "imperialist character" of the US strategy, which accused Moscow of aiming to "weaken US influence in the world and divide us from our allies and partners" while calling Moscow's nuclear arsenal an "existential threat."
Although Russia's military budget is just a fraction of that of the Pentagon's, Putin said it will continue developing new technology and even strive to be a leader in some areas in order to ensure its interests in the world are protected.
"Russia must be among the leading countries, and in some areas the absolute leader, when it comes to building a new-generation army," Putin said. "This is important to ensure our sovereignty."
"We must follow the change in the world's balance of power, first and foremost near Russia's borders... and in Europe, where NATO infrastructure is being built up quickly."
Russia spent more than four percent of GDP on its military last year, but Putin said this share will decrease in the future.
Defense Minister Shoigu said Russia's military budget in 2018 will amount to 2.8 percent of GDP at $46 billion -- just a fraction of the $700 billion budgeted by the United States.
Shoigu added that NATO has increased its presence near Russia's western frontier in Europe threefold since 2012 and has held twice as many exercises in 2017 compared with 2014.
"The question is, can we be self-sufficient in these conditions and with such capacities... can we ensure our country's defences?" Putin asked.
To get the most from its military investment, Putin said Russia will "rely on our brains" and refrain from building "endless numbers of bases around the world."
"We will not be sucked into a senseless arms race that would deplete our economy," he said, adding that Russia's military budget is based on its "peaceloving foreign policy."