Britain has suspended all arms exports to Russia amid fears there is a “grave danger” of military escalation in Ukraine.
The UK has also stopped all military cooperation with the federation, including the cancellation of a naval exercise, after Moscow pushed ahead with the annexation of Crimea, Foreign Secretary William Hague said.
MPs were told it will be “necessary to increase the pressure” on Moscow and the UK will argue for the strongest position and range of measures“ on which agreement can be made at the European Council later this week.
President Vladimir Putin has chosen international isolation by signing the annexation decree and Europe now faces the “most serious” test of security this century, MPs were told.
Discussions are under way to expand the international observer mission of the Organisation for Security and Co-operation in Europe (OSCE).
He said: “The crisis in Ukraine is the most serious test of European security in the 21 century so far.”
MPs were told Russia’s actions in Crimea “run roughshod” across all principles of international law and “threaten the future of Ukraine”.
“I pay tribute to the extraordinary restraint shown by the Ukrainian government, it’s military forces and its people in the face of immense provocation. With part of their country invaded and tens of thousands of forces massed on their border by a neighbour that refuses to rule out further military intervention against them there is a grave danger of a provocation elsewhere in Ukraine that becomes a pretext for further military escalation.
“We are working urgently to agree the mandate of an expanded OSCE monitoring mission to all parts of the country in the coming days.”
Mr Hague said Russia had “rebuffed all efforts” to find a solution ahead of the “illegal” referendum.
He added: “No amount of sham and perverse democratic process or skewed historical references can make up for the fact that this is an incursion into a sovereign state and a land grab of part of its territory with no respect for the law of that country or for international law.”
Mr Hague said the export ban would apply to ``military and dual-use items destined for units of the Russian armed forces or other state agencies which could be or are being deployed against Ukraine''.
It comes into force with immediate effect and covers existing licences and new applications as well as exports to other countries of components where there was a “clear risk” that it could end up in such equipment.
“Under current circumstances there is a compelling case for EU member states to act on defence export licences,” he told MPs.
“We encourage other European nations to take similar action.”
Mr Hague told MPs the UK was “determined to ensure we are taking all appropriate national measures”.
“The Prime Minister announced last week that we would review all UK bilateral military co-operation, not subject to treaty obligations, with Russia.
“I can announce now that we have suspended all such co-operation, including the finalising of the military technical co-operation agreement, the cancellation of this year’s French, Russian, UK, US naval exercise, the suspension of a proposed Royal Navy ship visit to St Petersburg and of all senior military visits unless in direct support of UK objectives.”
President Putin accused the West of behaving “irresponsibly” in backing an “extremist” uprising to oust pro-Moscow president Viktor Yanukovych in Kiev.
In a televised address to members of Russia’s parliament at the Kremlin, he said: “In the hearts and minds of people, Crimea has always been and remains an inseparable part of Russia.”
The result of Sunday’s referendum, which produced a 96% majority in favour of leaving Ukraine, was “more than convincing”, he said.
“The people of Crimea clearly and convincingly expressed their will - they want to be with Russia,” said Mr Putin.
He was given a standing ovation by Russian MPs, who chanted “Russia, Russia” as he completed his hour-long address.
But the president appeared to indicate that he was not planning any further incursions into eastern Ukraine, where a majority of the population are ethnically Russian.
“Don’t trust those who frighten you with Russia... we do not need a divided Ukraine,” said Mr Putin.
The European Union and United States have imposed travel bans and asset freezes on senior Moscow officials.
Tory former foreign secretary Sir Malcolm Rifkind has criticised the “pathetic” international response to the crisis but Prime Minister David Cameron insisted the West had taken a “robust” approach.
He said: “We’ve taken a robust approach. We’ve said that what happened in Crimea was wrong, and so there would be consequences, and already we’ve put in place measures.
“We’ve said that if Russia didn’t enter a contact group and start discussing these issues with Ukraine, there would be travel bans and asset freezes. There are now travel bans and asset freezes.
“And if Russia takes further action to destabilise the Ukraine and to threaten its territorial integrity, there will be further consequences.
“We have been clear, predictable and firm and consistent in the approach that we’ve taken and that is the right approach to take.”
Downing Street said that preparatory work will begin at the European Council in Brussels on Thursday on further EU sanctions which could be implemented against Russia.
When leaders of the 28-nation bloc met earlier this month to discuss the crisis, they announced a three-phase approach under which sanctions would be ratcheted up if Russia failed to de-escalate the situation.
The second phase was activated yesterday with the announcement of travel restrictions and asset freezes on 21 key individuals in the Russian and Crimean regimes.
Mr Cameron’s spokesman told reporters that the Prime Minister believes that it is now time to move to the third stage, which includes wider economic and trade sanctions against Russia.
“We will be arguing that further measures are needed,” said the spokesman. “There are a broad range of areas in the diplomatic and economic sphere that I am sure will be considered.”
Asked whether Mr Cameron was concerned that sanctions against Russia could harm the economic recovery, the PM’s spokesman said: “Do we take action understanding that there may be and are costs that are incurred? Yes. But is it important where sovereignty has been infringed for us to take robust action? Yes, it is.”
The crisis was discussed at this morning’s weekly meeting of Cabinet in 10 Downing Street.
Mr Cameron’s spokesman said: “The PM’s view is very much that we would want the Russian Government not to escalate but to de-escalate and to emphasise that there is an opportunity still for them to do that, but that it hasn’t happened yet.
“If that doesn’t happen, then the international community should take further measures.”
France’s foreign minister Laurent Fabius indicated that Paris wants Russia to be suspended from the G8 group of leading global powers.
The other seven members of the group had already suspended preparations for a G8 summit that Russia is scheduled to host in Sochi in June.
Mr Cameron has made clear he thinks it unlikely the G8 gathering will take place, and his spokesman said that Russia’s suspension is one of a range of diplomatic measures that should be “urgently considered”.
But Mr Fabius went further, telling Europe-1 radio that “concerning the G8... we decided to suspend Russia’s participation, and it is envisaged that all the other countries, the seven leading countries, will unite without Russia”.
