Finnish Democratic Republic The Finnish Democratic Republic ( , also , ) was a short - lived ( 1939 – 40 ) government dependent on and recognised only by the Soviet Union . It nominally operated in those parts of Finnish Karelia that were occupied by the Soviet Union during the Winter War . The Soviet Union argued that it was the only rightful government for all of Finland that was capable of ending the Winter War and restoring peace . However , before the end of the war , the Soviets gave up this interpretation to make peace with the existing government of Finland . Nomenclature . The regime was also known by the colloquial name of the Terijoki Government ( , ) , as Terijoki was the first town to be captured by the Soviet Red Army . The government is also occasionally called in Finnish historiography as the Kuusinen Government ( ) . Officially the government had the name of the Finnish People ' s Government ( ) . Establishment . The Finnish Democratic Republic was established on 1 December 1939 in the Finnish border town of Terijoki ( now Zelenogorsk , Russia ) . During its lifespan Otto Ville Kuusinen was prime minister and head of government . The cabinet was made up of Soviet citizens , leftist Finns who had fled to Soviet Russia after the Finnish Civil War . A declaration delivered via TASS on behalf of the Finnish Democratic Republic stated that , " The People ' s Government in its present composition regards itself as a provisional government . Immediately upon arrival in Helsinki , capital of the country , it will be reorganised and its composition enlarged by the inclusion of representatives of the various parties and groups participating in the people ' s front of toilers . The final composition of the People ' s Government , its powers and actions , are to be sanctioned by a Diet elected on the basis of universal equal direct suffrage by secret ballot . " Soviet foreign minister Vyacheslav Molotov spoke to the German ambassador to the Soviet Union on November 30 — a day before the proclamation of the Finnish Democratic Republic — saying that , " This government would not be Soviet but a democratic republic . Nobody will set up soviet s there , but we hope that it will be a government that we can reach agreement with on safeguarding the security of Leningrad . " Relations with the Soviet Union . The Soviet government entered into diplomatic relations with the " people ' s government " . On the first day of its existence , the regime agreed to lease the Hanko Peninsula ; to cede a slice of territory on the Karelian Isthmus ; and to sell an island in the Gulf of Finland , along with sections of the Kalastajasaarento near the Arctic Ocean to the Soviet Union . Kuusinen and Molotov signed a mutual assistance agreement and a secret protocol on 2 December 1939 . The content of the agreement was very similar to what the Soviet foreign ministry had planned earlier in October 1939 , though it never was presented to the Finnish government . According to the new agreement , the Soviet Union would cede a much larger area , the Eastern Karelia , except for the Murmansk railroad , in exchange for the same territories that the Soviets had demanded in earlier negotiations from the Republic of Finland . The agreement was signed in Moscow , as ten days earlier draft , the signature location would be Käkisalmi and the Soviet signer Andrei Zhdanov . The Molotov – Kuusinen agreement mentioned leasing the Hanko Peninsula , and determining the number of troops to be appointed in a separate agreement . Before the 1990s historians could only speculate about its existence and content until in 1997 , during a joint Finnish - Russian project , the Russian professor Oleg Rzesevski discovered the protocol in the Moscow Kremlin . The content is quite similar to protocols the Soviet Union signed with Estonia , Latvia and Lithuania in September – October 1939 . Reaction in Finland and abroad . The Finnish Democratic Republic failed to gain support among Finnish workers as the Soviet Union had hoped . Instead , in the face of the invasion , Finnish society became strongly united in what is called the " Spirit of the Winter War " . The Democratic Republic also failed to gain any international recognition aside from the Soviet Union itself , although a number of prominent left - wing activists and writers such as Jawaharlal Nehru , George Bernard Shaw , Martin Andersen Nexø and John Steinbeck voiced their support for the government . In Nazi Germany , state newspapers gave their support for the People ' s Republic because of the Molotov – Ribbentrop Pact . Joseph Stalin was well aware of the domestic political situation in Finland based on Soviet intelligence information , and thus did not anticipate that the establishment of the People ' s Republic would cause any revolutionary action or popular uprisings against the existing Finnish Government . Disestablishment . On 12 March 1940 , the Finnish Democratic Republic was merged with the Karelian ASSR within the RSFSR to form the Karelo - Finnish SSR , a Soviet republic in its own right , after Finland had ceded the areas to the Soviet Union in the Moscow Peace Treaty .