Vladimir Putin mocked Western sanctions on Friday morning, as David Cameron said the EU planned to cut Russia's strangehold on Europe's gas supply.
Mr Putin 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."
Soon afterwards, UK prime minister Mr Cameron revealed he was very happy with measures that EU leaders had drawn up overnight.
Among them was a pledge to reduce dependence on gas from Russia which currently accounts for 25% of all that used in the continent.
He said gas from US shale beds, extracted by fracking, and other so-far untapped European sources will increasingly replace Russian supplies.
"They need us more than we need them," he said, referring to the fact that Russia gets half of its gas income from EU countries."
Other measures included travel bans and asset freezes to 12 more people, on top of Thursday's raft of restrictions against those close to the Russian presidency and Russian bank Rossiya.
Leaders also agreed to cancel a G8 summit meeting with Russia that was planned to take place in Sochi in June.
Mr Cameron's comments came after EU leaders signed a resurrected trade deal with Ukraine that was the original catalyst for months of deadly protests in the country at a summit in Brussels.
Ukrainian Prime Minister Arseny Yatseniuk and EU leaders signed the core chapters of the Ukraine-EU Association Agreement on the sidelines of the summit.
The deal commits Ukraine and the EU to closer political and economic cooperation.
More substantial parts of the agreement, which is expected to remove restrictions on the movement of goods and services, are likely to be signed after Ukraine has held new presidential elections in May.
The signing comes four months after the now deposed Ukrainian President Viktor Yanukovych walked away from the agreement in favour of closer ties with Moscow.
This sparked months of protests that led to Mr Yanukovych being removed from office, Russia's annexation of Crimea and the worst crisis in relations between Russia and the West since the end of the Cold War.
On Thursday, Russia and the West began a tit-for-tat battle after the US began by slapping sanctions on 20 people connected with Putin.
Moscow immediately responded by banning nine US officials and politicians from entering Russia.
Mr Cameron said 33 Russians were now subject to EU sanctions. He added that the EU and the US, which has now imposed sanctions on 32, are working well together.
He refused to rule out sanctions against several oligarchs - including Chelsea owner Roman Abramovich - after calls from the US for action against rich and powerful Russians who have strong links to both Putin and the West.
But he said the priority was to act against those who had a direct connection with what happened in what he called "occupied Crimea".
Shares have fallen on the Moscow stock exchange - the Micex. Rating agencies have also changed their economic outlook for Russia to negative.
Russia's upper house of parliament unanimously approved a treaty on annexing Ukraine's Crimea region on Friday, and Mr Putin signed it into law soon afterwards.
Russian foreign minister Sergei Lavrov scornfully denounced the signing of the EU-Ukraine Association Agreement saying that it was "dictated by the EU's wish to score in a geopolitical game rather than in the interests of Ukraine".
The country's Prime Minister Dmitry Medvedev also signalled that Russia was refusing to back down by saying that Ukraine should pay back $11 billion it owes over a gas agreement, which he said should now be scrapped.
Crimea voted last week to break away from Ukraine, but Western nations condemned the poll as illegal.
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