Russia's parliament approved treaties with the two breakaway regions in Ukraine's east on Tuesday, a day after Putin announced he was recognising the independence of enclaves controlled by Russian-backed fighters since 2014.
The prospect of a disruption to energy supplies and fears of war, stoked by reports of shelling and movements of unmarked tanks in the city of Donetsk, rattled international markets and sent oil prices surging to their highest level since 2014.
Germany is Russia's biggest customer for natural gas, and the decision by Chancellor Olaf Scholz to halt the Nord Stream 2 pipeline - built but still not opened - was widely seen as one of the strongest measures Europe could take.
Scholz said he had asked the economy ministry to take steps to ensure that certification could not take place for now.
"This is a morally, politically and practically correct step in the current circumstances," Ukrainian Foreign Minister Dmytro Kuleba tweeted.
"True leadership means tough decisions in difficult times. Germany's move proves just that."
Putin said Russia would keep global gas supplies flowing.
"Russia aims to continue uninterrupted supplies, including liquefied natural gas, to the world markets, improve related infrastructure and increase investments in the gas sector," he said in written remarks for a gas summit in Qatar.
EU foreign ministers in Paris were discussing sanctions that would hit Russian banks.
The UK announced sanctions on three Russian billionaires and five Russian banks.
Prime Minister Boris Johnson said it was "inconceivable" that the European Champions League football final could go ahead in Russia as scheduled in May.
The United States has discussed sanctions but so far limited to measures directly related to the separatist regions, apparently preferring to keep a much larger planned sanctions package against Russia itself in reserve for now.
Russia's recognition of the separatist areas and Putin's authorisation of "peacekeeping" troops there, still stops far short of the massed large scale invasion that the US and its allies have said for weeks they fear is being planned in Moscow.
It leaves foreign leaders guessing as to Putin's intentions for a force of up to 190,000 troops deployed on Ukraine's borders.
But governments saw ominous signs in Putin's televised address on Monday in which he characterised the Ukrainian leadership as illegitimate and the Ukrainian state as artificial, and wrongly wrested from Russia after the fall of the Soviet Union.
Ukrainians consider such descriptions offensive and false.
Kyiv is older than Moscow and, while parts of Ukraine were captured by Russian tsars, other parts were not ruled by Moscow until World War II.
Kristina Kvien, the top US diplomat in Ukraine, said Putin's "outrageous statements about Ukraine and the Ukrainian people were delusional, reflecting a warped vision reminiscent, not of a global leader, but of Europe's worst authoritarians".
President Volodymr Zelenskiy said Ukraine may sever diplomatic ties with Russia and urged allies not to wait for a further escalation to impose sanctions.
Russian parliamentary approval of friendship treaties with the two regions could pave the way for Russia to build military bases there.
The Kremlin said it hoped Russia's recognition would help restore calm and that officials in Moscow remained open to diplomacy with the United States and other countries.
Ukraine said two soldiers had been killed and 12 wounded in shelling by pro-Russian separatists in the east in the past 24 hours, and reported new hostilities on Tuesday morning.
US President Joe Biden signed an executive order to halt US business activity in the breakaway regions.
"We've got to ensure that, whatever happens, Russia will feel the pain... to make sure Russia has absolutely no incentive to go further," Ireland's Europe minister Thomas Byrne said.
A US official said deployment of Russian troops to the breakaway regions did not merit the harshest sanctions the superpower and its allies have prepared in the event of a full-scale invasion, as Russia already had troops there.
European Union sanctions could include putting hundreds of politicians and officials on black lists, a ban on trading in Russian state bonds and an import and export ban on separatist entities, EU diplomats and officials said.
Russian Foreign Minister Sergei Lavrov brushed off the threat of sanctions.
"Our European, American, British colleagues will not stop and will not calm down until they have exhausted all their possibilities for the so-called punishment of Russia," he said.
The Russian-backed separatists in Donetsk and Luhansk broke away from Ukrainian government control in 2014 and proclaimed themselves independent "people's republics" after a pro-Moscow Ukrainian president was ousted in Kyiv.
It was not immediately clear whether Russian troops would stay in territory controlled by the separatists, or seek to capture territory beyond them, a move that would increase the likelihood of conflict.
