Lawmakers also confirmed that the presidential election will still be held on March 31.
However, analysts have warned that the prospect of martial law is likely to add further "instability to the situation."
The naval standoff in waters off the Crimean Peninsula marks a significant escalation in tensions between the two countries.
As a result, the United Nations Security Council is expected to hold an emergency meeting on Monday.
The former members of the Soviet Union have been locked in an undeclared war for almost five years, with Ukraine's military fighting two separatist movements against forces widely thought to have been backed by Russia. The Kremlin has formally denied any direct military intervention.
Russia's Federal Security Service, a law enforcement agency more commonly known as FSB, said Monday that its border patrol boats had seized three Ukrainian navy vessels in the Black Sea and used weapons to force them to stop, according to local media reports.
In a statement provided to local media, the FSB said such force had been necessary because the ships had illegally entered its territorial waters, attempted unlawful actions, and repeatedly ignored warnings to stop.
Russia's navy had previously blocked the Kerch Strait — near Russia-annexed Crimea — citing security reasons. This prevented two small Ukrainian armored artillery vessels and a tug boat from passing from the Black Sea to the Sea of Azov.
After it annexed the Crimean Peninsula in 2014, Moscow claims territorial waters off the peninsula's coast that Ukraine does not recognize.
"Even at this early stage, the incident marks a significant escalation of the conflict between Russia and Ukraine," Alex Brideau, director of the program covering Russia, Eurasia and Ukraine at Eurasia Group, said in a research note published late Sunday.
"Furthermore, the Russian government is not denying its role in the fighting, unlike in past cases. The incident in the Kerch Strait and the Ukrainian reaction so far carry geopolitical implications, as well as effects on Ukraine's domestic politics," Brideau said.
Western governments are widely expected to side with Ukraine over the incident itself, with the reaction from Washington and Brussels likely to come in the shape of targeted economic sanctions.
The naval incident also triggered protesters to gather outside the Russian embassy in the Ukrainian capital of Kiev overnight, where an embassy car was set on fire.
Ukraine said six sailors had been injured on Sunday, in what it described as an attack by jet fighters. The country's defense ministry has since announced orders to put the military on full combat readiness.
Ukraine accused Russian navy vessels of illegally trying to intercept their ships, ramming its tug boat in the process. It added their vessels attempted to continue towards the Kerch Strait, which is the only access they have to the Sea of Azov, but were eventually thwarted by a Russian tanker placed underneath a bridge.
"Politically, Russia is interested in sowing disarray in Ukraine and aims to undermine the incumbent president in his attempts to be re-elected in 2019," Orysia Lutsevych, a research fellow with the London-based Chatham House think tank, told CNBC via email on Monday.
"This act of aggression is testing the resolve and capabilities of Ukrainian Armed Forces to defend territorial integrity of Ukraine," Lutsevych said.
Russia's FSB confirmed one of its patrol boats had used force to seize three Ukrainian shipping vessels but claims only three sailors were injured in the process.
Russia's foreign ministry said Monday that Ukraine had most likely planned the incident in advance, accusing its neighbour of trying to provoke a reaction. Maria Zakharova, a spokesperson for Russia's foreign ministry, told state television a senior Ukrainian diplomat would be summoned to discuss the standoff, according to Reuters.
The Kerch Strait was re-opened by Russia in the early hours of Monday morning.
Pending parliamentary approval, Ukraine is poised to introduce martial law for two months from Monday. It comes after President Petro Poroshenko met with top security and military chiefs overnight.
"The martial law declaration adds further instability to the situation, especially since the Ukrainian parliament will most likely approve it, if with some reservations about its potential effect on domestic politics," Eurasia Group's Brideau said.
"Russia could use it to justify stronger military action, arguing that Kiev is moving to a war status. But we expect the Kremlin won't want to absorb escalating sanctions if it were to do so," he added.
Critics of Ukraine's president fear he could be using the naval incident to postpone a presidential election scheduled for March, as polls currently indicate he is unlikely to win.
Martial law would provide state institutions with greater power, while restricting civil liberties such as public gatherings, media freedoms and free movement in Ukraine.
"Events of this kind are likely to reinforce support for Poroshenko, as one of his main campaign strategies has been to emphasize security concerns about Russia and the importance of upgrading the Ukrainian military," Emily Ferris, a Russia expert at think tank the Royal United Services Institute, told CNBC via email on Monday.
"It is unclear whether martial law would extend across Ukraine or would only be confined to the southern Azov region," Ferris said.