The United States froze assets and imposed visa bans on seven powerful Russians close to President Vladimir Putin yesterday and also sanctioned 17 Russian companies in reprisal for Moscow's actions in Ukraine.
US President Barack Obama said the moves, which add to measures taken when Russia annexed Crimea last month, were to stop Putin fomenting rebellion in eastern Ukraine - an allegation Moscow denies. A Russian diplomat voiced "disgust" at the White House.
Among those sanctioned was Igor Sechin, head of state energy giant Rosneft. Its shares dropped nearly 2 per cent, while the broader Moscow stock market rose almost 1 per cent as investors decided the sanctions were softer than expected.
The European Union, with more to lose than Washington from sanctions against Russia, a major energy supplier and trading partner for the EU, was also expected to announce new penalties after member governments reached a deal, diplomats said.
"Russia's involvement in the recent violence in eastern Ukraine is indisputable," a White House statement said.
Moscow insists that a rebellion among Russian speakers in the east against the Kiev authorities is a home-grown response to a coup and denies having forces on the ground.
Armed men seized public buildings yesterday in Kostyantynivka, a town close to the rebel military stronghold of Slavyansk, where European military observers have been held captive since Friday.
In Kharkiv, the biggest city in the east, the mayor, Gennady Kernes, was fighting for his life after being shot in the back by an assassin while out cycling. The motive was unclear. The Interior Ministry said the 54-year-old's condition was "serious".
Germany demanded Russia act to help secure the release of seven unarmed European military monitors who have been held by the rebels since Friday.
But Moscow's ambassador to the OSCE security body for whom the men were working condemned the organisation, of which Russia is a member, as "extremely irresponsible" for sending them in to eastern Ukraine. Nonetheless, he said, they should be freed.
US officials had said the new sanctions list would include Putin's "cronies" in the hope of changing his behaviour.
The US will deny export licences for any high-technology items that could contribute to Russian military capabilities and will revoke any existing export licences that meet these conditions, the White House said.
It was the third round of sanctions that the United States has imposed over Crimea and the troop build-up on the border. All the sanctions have been aimed at individuals and businesses.
Obama said: "The goal is not to go after Mr Putin personally. The goal is to change his calculus with respect to how the current actions that he's engaging in in Ukraine could have an adverse impact on the Russian economy over the long haul.
"To encourage him to actually walk the walk and not just talk the talk when it comes to diplomatically resolving the crisis in Ukraine."
Nevertheless, such measures have done nothing so far to deter Putin, who overturned decades of post-Cold War diplomacy last month to seize and annex Ukraine's Crimea peninsula and has since massed tens of thousands of troops on the frontier.
Yesterday, the Russian Foreign Ministry voiced "deep concern" about a concentration of Ukrainian forces in the southeast, where Kiev says it is trying to blockade rebel positions. Moscow said Ukraine might be preparing for "the destruction of entire cities".