The European Union has for the first time slapped comprehensive economic sanctions on Russia and banned the exports of military goods and sensitive technologies in the energy sector for its "failure" to de-escalate the conflict in eastern Ukraine.
A package of punitive measures agreed at an emergency meeting of the EU ambassadors in Brussels yesterday will also restrict Russian banks' access to the European financial markets and curb the exports of high technology for the Russian armed forces.
These measures will ensure that some key sectors of the Russian economy will be brought under the sanctions regime for the first time since the EU began imposing penalties on Russia following its annexation of Ukraine's Crimean peninsula in March.
The EU's sanctions so far have been limited to visa ban on top Russian government officials and various individuals allegedly involved in the Ukraine crisis, freezing of their assets and suspension of partnership dialogue between the EU and the Russian Federation.
More than 80 Russian and Ukrainian individuals and entities are currently on the sanctions list of the EU.
The EU is hoping that the new measures will put pressure on Russia to change its course on Ukraine and to seek a negotiated settlement to the crisis, which was sparked by the refusal of the former pro-Russian government in Kiev to sign an association agreement with the EU in November, last year.
These measures represented a "powerful warning" to the Russian Federation that destabilising Ukraine or any other eastern European neighbouring state will bring heavy costs to its economy, European Commission President Jose Manuel Barroso and European Council President Hermann Van Rompuy said in a joint statement.
Russia will find itself increasingly isolated by its own actions, they said.
They offered the European Union's readiness to reverse its decision and to re-engage with Russia "when it starts contributing actively and without ambiguities to find a solution to the Ukraine crisis".
The Russian Federation and the EU have important common interests. The two sides will benefit from an open and frank dialogue, from increased cooperation and exchanges, the statement said.
"But we cannot pursue this important positive agenda when Crimea is illegally annexed, when the Russian Federation supports armed revolt in eastern Ukraine," it said.
The new measures will come into force after they are endorsed by the heads of state and government of the EU in the coming days.
The EU had so far shied away from imposing tough economic sanctions because of its strong economic ties with Russia, especially its heavy dependence on Russian natural gas and petroleum imports.
Russia is one of the leading markets for several EU member nations and there has been concern that retaliatory sanctions by Russia could hurt their economies.
However, the pressure on the EU to take tougher actions against Russia mounted after the apparent downing of the Malaysian Airlines plane over eastern Ukraine two weeks ago.
Western nations allege that it was brought down by a Russia-supplied surface-to-air missile fired by pro-Russian separatists in eastern Ukraine, a charge which Russia strongly denies.
The rebels have been denounced by EU nations for blocking access to the crash site for international investigators.