* Engine problem may be behind launch failure
* Satellites part of Russian Glonass system, rival to GPS (Updates Medvedev quotes, updates with background on Glonass)
By Dmitry Solovyov
ALMATY, Kazakhstan, July 2 (Reuters) - A Russian rocket carrying three navigation satellites worth around $200 million crashed shortly after lift-off from the Russian-leased Baikonur launch facility in Kazakhstan on Tuesday after its engines suddenly switched off.
The accident led to a large spill of heptyl, a highly toxic rocket propellant, but there were no reports of casualties or of any immediate threat to nearby settlements.
State-run Rossiya-24 television showed footage of the Proton-M booster rocket veering off course seconds after take-off. It flew horizontally and began to come apart in flames, crashing in a ball of fire near the launch pad.
Russian Prime Minster Dmitry Medvedev, who has said that Russia has lost 10 satellites in seven failed launches in just over one year, ordered tighter controls put in place to avoid more embarrassing mishaps, his spokeswoman told Interfax.
The crash, which echoes the costly loss of three navigation satellites in 2010, will further damage the reputation of Russia's once-pioneering space programme, cause delays in launches and threaten its hold on some 40 percent of the market for space launches.
Russia's space agency Roscosmos said the accident had been caused by the emergency switch-off of the rocket's engines 17 seconds into the flight. The shutdown could have been caused by a problem with the engine or the guidance system, the state-run RIA news agency reported.
The rocket contained 172 tonnes of highly toxic heptyl propellant, Kazakh Emergencies Minister Vladimir Bozhko told an emergency government meeting.
Talgat Musabayev, head of Kazakhstan's space agency Kazcosmos, said nitric oxide - a product of burning heptyl - was much less toxic for humans. He said it was raining in the area, so toxic clouds would probably not reach the town of Baikonur some 60 km (38 miles) away.
However, the authorities instructed locals to stay at home and not to open windows, and ordered to close shops and public catering, said Kazakh Interior Minister Kalmukhambet Kasymov.
The estimated loss from the three satellites, meant for the trouble Glonass satellite navigation system, was about $200 million, Rossiya-24 reported.
Russia plans to spend more than 300 billion roubles ($9.1 billion) by 2020 on Glonass, its answer to the U.S. Global Positioning System (GPS) system.
The system, first conceived by the Soviet Union more than 40 years ago, has been plagued by failed launches, including one in 2010 in which three satellites were also lost, and by suspicions of corruption and embezzlement. Its chief designer was dismissed last year during a fraud investigation.
Russia's workhorse Proton rocket, known at the time under its UR-500 code, made its first test flights in the mid-1960s.
It was originally designed as an intercontinental ballistic missile to carry a nuclear warhead targeting the Soviet Union's Cold War foe the United States. But it was never deployed as a nuclear weapon.
Several crashes of Proton rockets accompanied by spills of heptyl have led to temporary strains in relations between Russia and Kazakhstan.
Russia is increasing spending on space and plans to send a probe to the moon in 2015, but the pioneering programme that put the first man in space in 1961 has been plagued in recent years by setbacks, including botched satellite launches and a failed attempt to send a probe to a moon of Mars. ($1 = 32.9557 Russian roubles) (Additional reporting by Alissa de Carbonnel and Steve Gutterman in Moscow and Raushan Nurshayeva in Asatana; Writing by Dmitry Solovyov; Editing by Jon Boyle)