The United States froze assets and imposed visa bans on seven powerful Russians close to President Vladimir Putin on Monday and also sanctioned 17 Russian companies in reprisal for Moscow's actions in Ukraine.
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 percent, while the broader Moscow stock market rose almost 1 percent 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, is 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 that took power after the overthrow of a Kremlin-backed president in February is a home-grown response to a coup and denies having forces on the ground.
Armed men seized public buildings on Monday in another town, close to the rebel military stronghold of Slaviansk, where European military observers have been held captive since Friday.
In Kharkiv, the biggest city in the east, the mayor was fighting for his life in hospital after being shot in the back by an assassin while out cycling. The motive was unclear.
Germany demanded Russia act to help secure the release of seven unarmed European military monitors, including four Germans, who have been held by the rebels since Friday.
But Moscow's ambassador to the OSCE security body for whom the men are working condemned the organization, of which Russia is a member, as "extremely irresponsible" for sending them in to eastern Ukraine. Nonetheless, he said, they should be freed.
U.S. officials had said the new sanctions list would include Putin's "cronies" in the hope of changing his behavior.
The United States will deny export licenses for any high-technology items that could contribute to Russian military capabilities and will revoke any existing export licenses 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 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.
On Monday, 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".
Rebels take town
The rebels took another town on Monday morning, seizing the police headquarters and municipal administration building in Kostyantynivka. Reuters journalists at the scene saw about 20 well organized gunmen controlling the administration building. They erected a barricade of tires, sandbags and concrete blocks.
Soviet songs played over loudspeakers as women gathered the signatures of people supporting an uprising for independence and possible rule from Moscow. One gunman, who like others refused to give his name, said: "We have taken the building under our guard. We want to conduct a referendum."
The mayor of Kharkiv, Gennady Kernes, 54, was shot in the back while riding his bicycle, probably by someone hidden in nearby woods, a local government spokeswoman said. The Interior Ministry said his condition was "serious".
On Sunday, the separatist rebels paraded eight unarmed European military monitors before journalists. One, a Swede who is diabetic, was freed for medical reasons but four Germans, a Czech, a Dane and a Pole are still being held, described by the rebel leader as "prisoners of war" and NATO spies.
German Chancellor Angela Merkel's spokesman Steffen Siebert said they were held "against the law and without justification".
"We ask the Russian government to act publicly and internally for their release, to distance itself clearly from such acts and to use its influence on pro-Russian perpetrators and forces in eastern Ukraine to secure their release."
Ukraine's interim government, which is trying to hold a presidential election in a month's time, said it had lost at least $80 billion due to the annexation of Crimea and would press international legal actions against Russia.
EU states have been trying to help Kiev reduce its reliance on Russian gas supplies. On Monday, neighboring Slovakia signed a deal to let some EU gas travel eastward back to Ukraine—though it was less than Kiev had hoped for.
Obama is under pressure from opposition Republicans at home to move faster on sanctions. But in taking what he described as "calibrated steps", he has emphasized the need to act in concert with European countries, which have more at stake economically and a more cumbersome process for taking decisions.
The EU does more than 10 times as much trade with Russia as the United States and buys a quarter of its natural gas from Moscow. Most EU decisions require unanimity among member states.
Western countries say the targeted sanctions are already having an effect on Russia by scaring investors into pulling out capital. The central bank has been forced to hike interest rates to prop up the ruble, and Russian firms are finding it more difficult and costly to raise funds.