The Group of Seven industrialised nations says Russia's military intervention in Ukraine is a clear violation of sovereignty, and in retaliation it is suspending preparations for a summit in Russia later this year.
The G7 statement on Monday was issued as Russian forces strengthened their grip on the Crimean peninsula in southern Ukraine, where the population is mostly Russian.
Ukraine is preparing for war after Russia's President Vladimir Putin declared he had the right to invade his neighbour in Moscow's biggest confrontation with the West since the Cold War. On Saturday, he obtained permission from his parliament to use military force to protect Russian citizens in Ukraine, spurning Western pleas not to intervene.
Ukraine's Prime Minister Arseniy Yatsenyuk said Russia has declared war on his country and it is on the brink of disaster.
Mr Putin's plans to host a G8 summit in Sochi appear to be in tatters. Nations including the United States and Britain say they have abandoned the meeting in June in protest at Moscow's intervention in Crimea.
The statement followed a flurry of phone calls between the White House and world leaders including Britain's David Cameron, Germany's Chancellor Angela Merkel and Canada's Prime Minister Stephen Harper, Radio New Zealand's Washington correspondent reports.
It says the US, Britain, France, Germany and the other G7 members are abandoning plans to attend the summit and won't bother working with Moscow again until it's possible to have "a meaningful discussion". They urged Mr Putin to back down over Ukraine.
Earlier, Nato's Secretary-General Anders Fogh Rasmussen called for the deployment of international observers to Ukraine and warned Russia's actions could destabilise the entire continent. After an emergency meeting in Brussels, ambassadors from the 28 member states called on Russia to send its troops back to their bases and refrain from interference elsewhere in Ukraine.
De facto control
Russian forces have already bloodlessly seized Crimea and have surrounded several small Ukrainian military outposts there.
There are reports that Russian ships have been moving around the port city of Sevastopol, where the Russian Black Sea Fleet has a base and that Russian forces have blocked mobile telephone services in some areas.
Crimea is now de facto under Russian armed control on Monday. Two large Ukranian military bases are surrounded with Russian troops standing alongside local self-defence groups who demand that the Ukranian soldiers inside defect from Kiev to Crimea's new pro-Russia government, the BBC reports.
The naval headquarters remain blockaded and key installations including airports are still occupied. The head of the Ukrainian navy, Denis Berezovsky, was removed from his post after pledging allegiance to pro-Russian authorities in Crimea.
Thousands of newly arrived Russian elite troops far outnumber Ukraine's military presence there. At countless pro-Russia demonstrations, Moscow's intervention is warmly welcomed. But away from the nationalist fervour, Crimeans from all sides are profoundly fearful of what comes next.
Meanwhile, Russian asset prices have plummeted in the opening of trading in Moscow as investors react to events in Ukraine, with stocks dropping by 7 percent at one point on Monday.
The rouble has hit an all-time low against the euro and the US dollar, and Russia's central bank has lifted its key lending rate.
Act of aggression, says US
The United States called Russia's action in Ukraine an act of aggression and warned Moscow it could pay a huge economic price.
Officials announced that Secretary of State John Kerry will travel to Kiev this week to show America's support for the new government.
A senior official said the US is focused on economic, diplomatic and political measures to get Russia to reverse its intervention in Ukraine, not on military options.
Mr Kerry warned that Russia could be ejected from the G8 and may face economic sanctions.
"You just don't in the 21st Century behave in 19th Century fashion by invading another country on completely trumped-up pretext," he told the CBS programme Face the Nation.
Russian ground troops have been active in Crimea - home to Russia's Black Sea Fleet - for the past few days.
On Saturday, US President Barack Obama held a 90-minute telephone conversation with Mr Putin and urged him to pull forces back to bases in Crimea. However, Mr Putin said Moscow reserved the right to protect its interests and those of Russian speakers in Ukraine.