Vladimir Putin has completed legislation for taking control of Crimea, as David Cameron warned Russia it faces international isolation and tighter sanctions over the move.
As the Russian President signed the final annexation document in a Kremlin ceremony broadcast live on state television, Mr Cameron and other EU leaders imposed sanctions on 12 more people to punish Moscow for its takeover of the Ukrainian territory.
The EU also agreed to step up moves to reduce the bloc's reliance on Russian energy.
Mr Cameron said EU members needed to do more to develop their own reserves, as well as their ability to use gas from overseas producers, including the US.
The Prime Minister said: "Our message to Russia is clear: choose the path to diplomacy and de-escalation or face increasing isolation and tighter and tighter sanctions.
"It was very important that the European democracies represented here should send a strong and united message that Russia should face further consequences, and that is what we have done.
"We have subjected 12 more individuals to travel bans and asset freezes, bringing the total to 33. We have cancelled the EU-Russia summit, agreed not to hold bilateral summits and we'll block Russian membership of the Organisation for Economic Co-operation and Development and the International Energy Agency.
Russia was accused by Ukraine of invading Crimea during recent unrest "We have agreed to rapidly implement economic, trade and financial restrictions on occupied Crimea. We will only accept Crimean goods in the EU if they come from the Ukraine and not Russia."
Mr Cameron also refused to rule out further sanctions against several oligarchs, including Chelsea owner Roman Abramovich.
Beyond punishing Russia, the EU leaders also showed backing for Ukraine by signing an agreement which aligns the new administration in Kiev more firmly with Europe.
The measures come a day after the US decided to slap sanctions on Mr Putin's inner circle of money men and security officials.
US President Barack Obama said 20 individuals linked to the Russian government and a bank supporting those individuals would be targeted.
Moscow immediately responded by banning nine US officials and politicians from entering Russia. It has yet to take retaliatory action against the EU.
But on Friday morning, Mr Putin mocked planned Western sanctions against his country over its annexation of Crimea.
He was reported to have claimed he will open a bank account at a sanction-hit bank and joked he will steer clear of allies on a list of people facing sanctions as they are "compromising us."
And Ukrainian troops begin leaving their military bases in the Crimean peninsula. The truce between the two countries has now expired.
The Russian takeover of the Black Sea peninsula has been largely bloodless, though one Ukrainian serviceman was killed and two others wounded in a shooting earlier this week.
But Ukraine's Acting President has vowed that the country will never accept Russia's seizure of Crimea.
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