The pipeline proposed by Russia's Gazprom and Italy's Eni is a rival project to the Nabucco pipeline backed by the European Union and United States, which will pump Central Asian gas to Europe via Turkey bypassing Russia.
Gazprom CEO Alexei Miller confirmed on Friday that Bulgaria would hold a 50% stake in a joint venture that will operate the South Stream pipeline across the Balkan state's territory. Earlier reports said Bulgaria was seeking a majority stake in the pipeline.
"The ownership structure problem has been solved. It will be 50-50," Miller told reporters, adding that the pipeline will come on stream in 2013.
The contract was signed as part of Russian President Vladimir Putin's official visit to Sofia.
Bulgarian Prime Minister Sergei Stanishev said earlier on Friday the two countries had managed to settle differences over the project at talks late on Thursday, when Putin arrived in the country.
Putin was accompanied to Bulgaria by a host of government officials including First Deputy Prime Minister and Gazprom board chairman Dmitry Medvedev, who is widely expected to assume the presidency in spring.
The South Stream pipeline will run from Russia's Black Sea coast under the sea to Bulgaria, where it will branch off to different destinations in the European Union, supplying 30 billion cu m of gas annually. Possible routes for the land section are still under discussion.
Putin told a news conference in Sofia that Gazprom and Eni had registered a joint venture to build South Stream's underwater section.
"A new company was registered today by Gazprom and Eni, which will carry out design work and build the underwater section of the South Stream gas pipeline," he said.
Other energy deals signed during Putin's visit to Russia's former Communist ally and now EU member include an agreement to set up a company to oversee the construction of the Burgas-Alexandroupolis oil pipeline, which would involve the two countries and Greece.
The three nations signed a deal in March 2007 to lay down a pipeline to carry 35-50 million metric tons of Russian crude annually (257-367 million bbl), via the Bulgarian Black Sea port of Burgas and Greece's Alexandroupolis on the Aegean, as an alternative route to bypass the congested Bosporus.
Under the deal, Russia will have a 51% stake in the pipeline project and Greece and Bulgaria will hold 24.5% each.
The countries also signed on Friday a $6 billion contract on the Belene nuclear power plant in Bulgaria to be built by Russian contractor Atomstroyexport.
Russia's new oil and gas pipeline projects have triggered concerns in Europe over its growing dependence on Moscow.
However, Putin highlighted the projects' international importance. "We are positive that their successful implementation will bring tangible economic dividends [to the countries involved], as well as raise energy security of the Balkans and Europe as a whole."
Russia's other agreements with Bulgaria signed on the sidelines of Putin's visit were an understanding on cooperation in tourism, a deal to build a train ferry system linking Russia's Kavkaz port in the Kerch Strait to Bulgaria's Varna port to facilitate cargo movement, and a series of cultural agreements.