World leaders urged Vladimir Putin on Wednesday to stop destabilising Ukraine or face further sanctions as they met without the Russian president for the first time since the 1990s.
Putin reached out a hand despite being banned from the Group of Seven summit following Russia's annexation of Crimea in March, saying that he was ready to meet Ukraine's president-elect.
But G7 leaders said that while they still hoped for "constructive" talks with Putin on the sidelines of D-Day commemorations in France this week, Moscow could face further punitive measures.
In a joint communique after their summit they said Putin must recognise the results of Ukraine's May 25 presidential election, won by Petro Poroshenko, stem destabilisation in the east of the country, and pull Russian troops back from the border.
"Actions to destabilise eastern Ukraine are unacceptable and must stop," the group said.
"We stand ready to intensify targeted sanctions and to implement significant additional restrictive measures to impose further costs on Russia should events so require."
US President Barack Obama earlier hit out at Russia's "dark tactics" in Ukraine in a hawkish speech in Warsaw which harked back to some of the darkest days of the Cold War, 
Obama has shown no signs of wanting a meeting with Putin despite the fact that both will be in Normandy Friday to mark the 70th anniversary of the D-Day landings that helped end World War II.
- 'Be constructive' -
Other G7 leaders whose economies are more exposed to Russia than Washington took a softer tone, wielding the stick of sanctions while dangling the carrot of a thaw.
German Chancellor Angela Merkel said that European leaders would "take stock" of Russian actions at a summit end June and "reflect which further sanctions are necessary".
But Merkel, who is due to meet Putin in France, said that the "the main thing is to be constructive" and that further sanctions would take effect only if there had been "no progress whatsoever".
French President Francois Hollande -- who is scheduled to have separate dinners with both Putin and Obama --  agreed that "dialogue and deescalation must be encouraged". 
British Prime Minister David Cameron said he would be taking a similar message to Putin when he met him on Thursday.
Putin hinted that he could meet both Poroshenko and even Obama, saying "I don't plan to avoid anyone".
But he taunted the United States and waved away allegations of Russian military meddling in eastern Ukraine.
"Proof? Let's see it!" he said. "The entire world remembers the US secretary of state demonstrating the evidence of Iraq's weapons of mass destruction, waving around some test tube with washing powder in the UN Security Council".
- 'Dark tactics' -
The worst East-West crisis in decades dominated the G7 talks, a summit due to have been hosted by Putin in the Black Sea resort of Sochi but switched to Brussels in the anger that followed Moscow's wresting of Crimea from Ukraine in March.
The crisis began when then Ukrainian president Viktor Yanukovych rejected an association deal with the EU late last year, triggering protests which ended in his downfall in February and were followed by months of clashes between the new government and pro-Moscow rebels.
Obama earlier promised years of US support for Ukraine and for ex-communist NATO states, plus a one-billion-dollar fund for new military rotations through Eastern Europe.
"How can we allow the dark tactics of the 20th century to define this new century?" Obama asked in a speech in Warsaw marking 25 years of Polish democracy after the Cold War.
Earlier, Defense Secretary Chuck Hagel announced in Brussels a review of the US forces' presence in Europe in a sign that Washington is not backing down.
Obama met Poroshenko three days before his inauguration and declared himself "deeply impressed" by the chocolate tycoon Ukrainians chose to lead them back from a political and economic precipice.