The turmoil in Ukraine is the "biggest crisis" to face Europe in the 21st Century, British Foreign Secretary William Hague has warned.
He said Russia controlled the Crimea, in violation of Ukraine's sovereignty, and warned of "significant costs" if their troops did not withdraw.
He urged Ukraine and Russia to hold talks and suggested Russia's membership of the G8 could be under threat,
Vladimir Putin has said Russia reserves the right to protect its interests.
"Start Quote
End QuoteA full blown crisis in Ukraine would be a crisis on Europe's front doorstep not America's. In London and Berlin officials are already worrying about where the refugees might go"
Ukraine has ordered a full military mobilisation in response to Russia's build-up of forces on the peninsula.
David Cameron and Barack Obama, who discussed the crisis on the phone on Sunday, have agreed Russia must face "significant costs" if it does not change course after deploying troops in Crimea.
Mr Hague, who travelled to Kiev on Sunday to meet the new Ukrainian government, told the BBC that Russia had "legitimate" interests in the region.
But he said their actions were unacceptable and required a "strong" response from the international community.
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William Hague: "The sovereignty and territorial integrity of Ukraine has been violated"
"It is a very tense and dangerous situation that Russia's intervention has now produced," he told BBC Radio 4's Today, adding that there was now a constant risk of "flashpoint".
"The world cannot just allow this to happen. The world cannot just say it is OK, in effect, to violate the sovereignty of another nation in this way."
Mr Hague rejected claims the US and EU were powerless to act, saying they had a range of options at their disposal if Russian forces did not return to their bases and honour the terms of an agreement with Ukraine.
"There is a serious threat to G8 co-operation in the coming weeks and months," he added.
The UK and other G7 nations have already said they are suspending preparations for this year's G8 summit in Russia, while the US has hinted at stronger measures, such as possible sanctions and asset freezes on Russian business.
'Completely unacceptable'A Downing Street spokesman said: "The prime minister and President Obama spoke at 9pm tonight [Sunday].
"They agreed that Russia's actions were completely unacceptable. They agreed on the urgent need for de-escalation and for Russia to engage in a dialogue directly with Ukraine.
"They agreed there must be 'significant costs' to Russia if it did not change course on Ukraine."
A statement from the G7 said it was suspending preparations for June's G8 summit in the Russian resort of Sochi because of the "clear violation of the sovereignty and territorial integrity of Ukraine".
It called on Moscow to "address any ongoing security or human rights concerns that it has with Ukraine through direct negotiations".
The G7 nations comprise the UK, US, Canada, France, Germany, Italy and Japan, while the G8 includes those nations plus Russia.
In a separate development, Buckingham Palace said Prince Edward has cancelled a visit to the Sochi Paralympics.
A statement said: "The Earl of Wessex, patron of the British Paralympic Association has, on the advice of government, cancelled a planned visit to Russia between 11 and 14 March to attend the Sochi Paralympic Games."
British Paralympic Association chief executive Tim Hollingsworth told BBC Sport: "We completely understand the decisions that have been taken that mean UK ministers and His Royal Highness The Prince Edward will not attend the Sochi Paralympic Games.
"We are grateful for their continued full support for the British team to compete in Sochi. That remains our prime focus; the team are all in Sochi as of tomorrow [Monday] and training hard."
Crimea key facts
- Autonomous republic within Ukraine
- Most residents speak Russian and identify as ethnic Russians
- Some others are anti-Russian
- Russia leases naval base in Crimean city of Sevastopol
- Moscow has deployed its troops outside the base and sent extra troops from Russia
A spokesman said Mr Cameron remained "fully supportive of our Paralympic athletes' participation at Sochi".
Mr Yanukovych's removal from power followed four months of street protests that culminated in bloody clashes between demonstrators and security forces.
The Foreign Office has advised against all travel to Crimea, and urged British nationals in the peninsula to leave.
It said it was not able to provide consular services to anyone choosing to remain in Crimea.
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