(Repeats story from late Friday with no changes)
* Three members of "dacha" group hit by sanctions
* Group members hold high ranking jobs under Putin
* Putin, friend Yakunin laugh off sanctions
By Timothy Heritage
MOSCOW, March 21 (Reuters) - Four years before he became Russia's president, Vladimir Putin built himself a lakeside house in woodland outside St Petersburg.
Soon after he finished it in 1996, Putin was relaxing one day in the "banya" (sauna) when the building caught fire. He rushed upstairs to retrieve some money but realised the building was about to burn down with him in it.
"I ran out to the balcony, flames were shooting upward, I clambered over the railing, grabbing the sheets, and began to lower myself down," he recalled in an interview included in a book about his early life.
"And here's an interesting detail: I was stark naked from the banya. I had only just managed to wrap a sheet around myself. So you can imagine the scene: the house is burning, there's a naked man wrapped in a sheet, crawling down from the balcony, and the wind is blowing the sheet out like a sail."
The "dacha" burnt down and Putin rebuilt it.
He has come a long way since then. So too have some of the friends who were his neighbours in the gated community by Lake Komsomolsk, named after the Communist Party's youth wing.
Their rise to power and wealth on Putin's coat tails has raised many eyebrows over the years, not only about their suitability for high office but about Putin's entire political system, built around loyalty and the security services.
Three of the eight founding members of the Ozero (Lake) housing cooperative that was set up to manage the dachas were targeted in the latest round of U.S. sanctions on Thursday over Russia's annexation of Ukraine's Crimea region.
The U.S. Treasury Department specifically mentioned the Ozero link to Putin in a statement explaining the sanctions, which imposed visa bans and asset freezes on some of his inner circle.
"These sanctions are Obama's private message to Putin," said former central banker and finance ministry official Sergei Aleksashenko, a Putin critic.
The message is not only that Putin should change tack over Crimea. It is also that the political system he has built - concentrating power in the hands of a powerful president - is at best faulty, at worst corrupt.
The rise of Vladimir Yakunin to become head of state-run Russian Railways, Yuri Kovalchuk, who became the head of the successful Bank Rossiya, and Andrei Fursenko, who is now a Kremlin aide, says a lot about how that system works.
Like Putin, who shortly before his dacha burnt down had quit his job in the St Petersburg city administration after backing the losing side in an election, Yakunin says he was down on his luck and short of funds when Ozero was created.
Like Putin, he had returned home from service abroad. Putin was a KGB agent in Dresden, which was then in East Germany, and Yakunin had been a diplomat at the United Nations in New York.
His rise was sudden. After Putin became president in 2000, Yakunin became deputy transport minister, joined Russian Railways in 2003 and took it over two years later.
He is still running the same company and helped Putin stage a successful Winter Olympics last month by building a railway line to the ski slopes near Sochi - albeit at an astronomical cost; the new road and railway line cost about $8 billion.
"We were simply a small group of people united by common interests and, of course, loyal to our country, wanted to do all we could for everything to turn out alright," Yakunin told Prime news agency of the Ozero cooperative last year.
Portraying the group as like-minded patriots, he said: "We did not just want to work for the money but - believe it or not, the first thing in our business vision was developing and looking after our country."
Those comments were much derided at the time by critics who see many of Putin's inner circle as cronies. Some media say Putin's administration is packed with old friends, friends of friends and veterans of the security services.
Kovalchuk's rise was also dramatic - and even on Friday Putin was showing his loyalty by offering Bank Rossiya his patronage, saying he would open an account there on Monday.
Although Fursenko's rise has not been quite as meteoric, he was education minister for about eight years after Putin became president and is now advising his friend in the Kremlin.
The Kremlin denies suggestions that Putin hands out jobs on any grounds other than merit. It also denies charges by opposition politician Boris Nemtsov and a colleague, Vladimir Milov, that the system Putin created - dominated by one man - has allowed his friends to enrich themselves illegally.
When Putin rebuilt his dacha he did not enlarge it and he presents his life there as simple, involving ordinary Russian pastimes like fishing and none of the flashiness of the business "oligarchs", who have built vast mansions in the forests around Moscow and St Petersburg.
Putin declared an income of 5.8 million roubles ($160,000) in 2012 and has said he works like a "galley slave" to run Russia, but Nemtsov said that year that four yachts, a string of palace-like homes and luxury presidential perks mean Putin has little need for personal wealth while in office.
Many of those perks date from Communist times, when the elite lived vastly more privileged lives than ordinary Russians, but did so discreetly.
When Putin was asked about the U.S. list including his Ozero friends he responded by mocking the sanctions.
"We'd better stay clear of them," he said laughing.
Yakunin said on a blog the list was "irrational" and added: "I cannot hide that I felt flattered. All the people on the list are notable people, people who have done a lot for Russia." (Additional reporting by Elizabeth Piper, Alexei Anishchuk and Alissa de Carbonnel; editing by Philippa Fletcher)
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