The American package of sanctions packed the most punch and drew an angry threat of serious retaliation from Moscow, further escalating the worst standoff since the Kremlin and the West since the Cold War.

Europe and the United States acted after fighting between the Western-backed Kiev government and pro-Russian separatists took another dangerous turn, with 55 civilians killed since the weekend alone.

"Given its continued provocations in Ukraine... I have approved a new set of sanctions on some of Russia's largest companies and financial institutions," Obama said at the White House.

The president said he had repeatedly told Russian President Vladimir Putin to halt the flow of weapons across the eastern Ukraine border and to agree to genuine border monitoring measures.

"Russia has failed to take any of the steps that I mentioned," Obama said.

"In fact, Russia's support for the separatists and violations of Ukraine's sovereignty have continued."

Putin warned the biting sanctions will boomerang and hit back at US national interests, will inflicting "very serious damage" on an already tattered US-Russia relationship.

"I am convinced that this will harm the national long-term interests of the American state, the American people," Putin told reporters in Brasilia, according to the ITAR TASS state news agency.

Washington's moves will have the effect of barring from US capital markets two major Russian financial institutions, Gazprombank and VEB, and two giant Russian energy firms, OA Novatek and Rosneft.

The US Treasury also said that eight Russian arms firms that produce small armaments, mortar shells and tanks would also face direct sanctions.

The US list of sanctions included measures against the self-styled breakaway Donetsk People's Republic and the Lugansk People's Republic in eastern Ukraine.

NJF/NJF