Russian Prime Minister Vladimir Putin is making a mockery of democracy by running for a third term as president, former U.S. Secretary of State Condoleezza Rice said on Wednesday.

Having already been president from 2000 to 2008 before becoming prime minister, Putin on September 24 unveiled plans to swap jobs with President Dmitry Medvedev, allowing the duo to continue their joint rule.

First of all, the way that the whole thing was done makes a bit of a mockery of the electoral process, Rice said in an interview to promote No Higher Honour, her memoir of serving as Republican former President George W. Bush's national security adviser and secretary of state.

Asked if it was a good idea for Putin to run again, Rice said no and sighed. It's unfortunate.

If Putin is elected in March as universally expected, Rice said, there is a chance, and perhaps a probability, that he may try to limit dissent and centralize power more than he had during his earlier incarnation as president.

However, Rice, a Stanford University Soviet specialist before entering government, said Russia's integration into the world economy may over time limit his ability to curb civil and political liberties.

There will be certain constraints and realities even for Vladimir Putin, she added, saying Russians have a greater sense of the wider world through travel and the Internet and may not tolerate political repression.

Putin's presidency is widely seen abroad as a period in which civil liberties and the rule of law eroded, notably in the case oil magnate Mikhail Khodorkovsky, who was jailed for fraud and tax evasion in 2005 and lost his $40 billion business empire after mounting a political challenge to Putin.

Khodorkovsky remains in jail.

RISK OF 'SIGNIFICANT TURMOIL'

Asked if Putin might seek to further limit dissent if he becomes president again, Rice said: There is certainly that risk and, you know, if you were to give odds, you would probably say that that's the case.

If he goes that route, I think he risks significant turmoil inside Russia, she said, noting the domestic criticism of the September decision for Putin and Medvedev to swap jobs.

I am not suggesting that he can't crack down, but I am just saying that it comes at a greater cost than one might think, she added.

If he wins the maximum two consecutive six-year terms, Putin, 59, could be president until 2024.

Putin, who has remained Russia's paramount leader as prime minister, has likened himself to former U.S. President Franklin Delano Roosevelt, elected to the White House four times.

During the interview, Rice also touched on the climate for foreign investment in Russia, argued it was time to sanction Iran's central bank and said U.S. President Barack Obama erred in demanding Israel halt all Jewish settlement construction.

- Asked whether Exxon Mobil Corp's was right to strike an agreement to extract oil and gas from the Russian Arctic with Russia's Rosneft, Rice, a former Chevron Corp director, replied:

I don't know enough about the deal. I don't know what assurances they did or did not get. Obviously, there are risks, right? ... because contractual relations in Russia are subject to change with political winds and that, really, is the story of several of these cases.

- Rice said there was still time for diplomacy to try to persuade Iran to abandon its nuclear program but called for much tougher measures such as sanctioning its central bank.

The United States suspects that Iran may be using its civil nuclear program as a cover to develop nuclear weapons. Iran says its nuclear program is for solely peaceful purposes.

There is time for diplomacy but it better be pretty coercive diplomacy at this point, she said, adding there were steps that could be taken without the approval of the U.N. Security Council, where Russia or China could veto more sanctions.

It's time to back them into a corner, she added. I know that sanctioning the central bank ... will put them in very dire circumstances but maybe that's what it takes at this point.

- Rice said Obama, who has little to show for nearly three years of trying to make peace between Israel and the Palestinians, had erred in seeking an absolute freeze on Israeli settlement construction in the West Bank.

I think it was a mistake, she said. By calling for the settlement freeze instead of starting where we left off, you, I think, pretty much assured that you were going to back the Palestinians into a corner because they couldn't be less Palestinian than the Americans.

She added: (At) no place on the political spectrum can an Israeli prime minster agree to a total settlement freeze. So you had the worst of both worlds, I think.

(Editing by Mohammad Zargham)