The European Union has agreed to slap a new round of sanctions on Russia despite a fragile ceasefire in Ukraine, where NATO says Moscow still has 1000 troops on the ground.
Diplomatic sources in Brussels said EU member states decided on Thursday to go ahead and implement the threatened punitive measures after heated debate on the timing because of the truce agreed last week by Kiev and the pro-Russian separatists.
The announcement came as the Ukrainian authorities acknowledged that the insurgents had extended their control over territory on the eastern border to the Sea of Azov after a lightning counter-offensive late last month.
In the days before the ceasefire came into force last Friday, the separatists had swept south - reportedly backed by elite Russian troops and firepower - in an attempt to secure a land corridor from the Russian border to annexed Crimea.
Some EU member states - wary of further economic reprisals by Kremlin - had said they wanted to wait and see what happened on the ground in Ukraine before imposing the new measures that target Russia's stagnating economy.
Thursday's announcement sent the ruble plunging to a new record low.
NATO said last month that Russia had funnelled in at least 1,000 elite troops and heavy weapons in what some described as an invasion by stealth to bolster the rebel surge that dramatically reversed recent advances by the Ukrainian army.
But in surprise announcements Wednesday seen as helping sustain the peace pact, Ukrainian President Petro Poroshenko pledged greater autonomy for the separatist east and said Russia had withdrawn 70 per cent of its forces.
The withdrawal would be "a good first step" if confirmed, a NATO military officer said in a statement.
But "the fact of the matter is there are still approximately 1000 Russian troops in eastern Ukraine... and approximately 20,000 troops on the Russian border".
Washington also described Poroshenko's comments on the troops as "a good, tiny first step" but said it was unable to verify what would be a potentially significant development in the five-month crisis.
The stepped up sanctions against major Russian businesses and allies of President Vladimir Putin reflect deep Western concern over Moscow's territorial ambitions.
Putin has accused NATO of making up the charges over its involvement in Ukraine to justify its decision to deploy a new force in eastern Europe and encroach on Russia's western frontier.
"The crisis in Ukraine, which was basically provoked and created by some of our Western partners, is now being used to revive this military bloc (NATO)," Putin said.
Rattling the truce, Kiev said Thursday that its military positions had come under attack 20 times in the past 24 hours, while AFP correspondents reported hearing artillery fire overnight near the main insurgent bastion of Donetsk.
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