European Union leaders will suspend talks on a new partnership agreement with Moscow until Russian troops withdraw from Georgia.
After an emergency summit in Brussels on Monday, EU Commission President Jose Manuel Barroso said it was clear it could not "continue as if nothing had happened".
Foreign policy chief Javier Solana said the EU was prepared to send hundreds of civilian monitors to Georgia to check if Russia was abiding by a ceasefire agreement, brokered by the EU.
The EU also condemned Russia's move to recognise the independence of Georgia's regions of South Ossetia and Abkhazia, and called on other states not to do so.
Russia has warned further support for Georgia would be a "historic" mistake.
Foreign Minister Sergei Lavrov also called for an embargo on arms supplies to Georgia until a different government is in place there.
Fighting between Russia and Georgia began on 7 August after the Georgian military tried to retake South Ossetia by force.
Russian forces launched a counter-attack and ejected Georgian troops from South Ossetia and Abkhazia.
The talks were originally scheduled for mid-September. However, Mr Barroso said their timing would depend on Russian forces moving back to their positions prior to 7 August.
French President Nicolas Sarkozy said the crisis meant the bloc had to re-examine its relationship with Russia.
A statement from the EU summit said the European Council was gravely concerned by the "disproportionate reaction of Russia" in Georgia.