Dmitry Rogozin, head of Roscosmos Federal Space Agency, made the bold claims about the SpaceX founder on Monday when he appeared on state-run television.
Mr Rogozin, who used to be Deputy Prime Minister, said Mr Musk deliberately undercut rocket launch prices to “squeeze Russia out of this market”.
He claimed the US Department of Defence “pays him on average $150million for every launch”.
The agency boss added: “He’s paid extra to enter the market with a cheaper product.
“Of course, Russia can’t compete.”
Mr Musk is a billionaire tech giant known to invest in ambitious missions in space and for founding businesses Paypal and Tesla, which specialises in electric cars.
He is a controversial figure, known for his outrageous comments on Twitter.
Mr Rogozin branded the alleged deal between Mr Musk and US government as “unfair”, but declared Russia will fight back, challenge the competition and return to dominance.
He made particularly reference to Russia’s new Angara heavy space rocket.
In May, Mr Musk said SpaceX would “launch more rockets than any other country in 2018”.
He added: “By this time last year we’d only done orbital-class missions.
“We’re on track to be at double our launch rate for last year, which was a record launch rate for us.”