Britain's defence secretary Michael Fallon said Sunday it was time for Russia to "stop interfering" and "get out of eastern Ukraine".
He added that the "sponsored war" in the region was "completely unacceptable".
Fallon said Russian President Vladimir Putin was encouraging the ethnic Russian separatists in eastern Ukraine.
"They need to get out of East Ukraine and leave Ukraine to the Ukrainians," he told The Mail on Sunday newspaper.
Asked if Putin was "egging on" the separatists, Fallon replied: "Yes. That is the danger that flows from Russian activity on and over the border in the last few months. That's why he needs to move his troops away from the border and stop interfering."
If he could speak to Putin, Fallon said he would say: "it is completely unacceptable for a country to be involved in this kind of activity in another sovereign state."
Britain believes the evidence surrounding the Malaysia Airlines passenger plane crash in east Ukraine, which killed all 298 people on board, points to it being shot down by Russian separatists.
Fallon said of Putin: "We have to make it very clear if there is any more interference like this -- and it turns out he was behind it -- there will be repercussions. He has to be clear the West will act.
"If Russia is the principal culprit, we can take further action against them and make it clear this kind of sponsored war is completely unacceptable.
"It is sponsored terrorism as far as people of east Ukraine are concerned. We don't know if somebody said 'let's bring down a civil airliner, wherever it's from', -- but we need to find out."
He said Britain was working very hard to avoid" a confrontation between Russia and the West, but "NATO has to respond".
Russia is "clearly a threat to NATO's eastern flank and that's why we must offer as much reassurance as we can, particularly to the Baltic states", said Fallon.
The defence secretary said there was plenty of evidence that existing financial sanctions were affecting the Russian economy and the ability of Russian firms to trade through London's financial hub.
"There's a range of other sanctions available, cutting off more links with Russia. He (Putin) needs to trade with the West and relies on the City of London," he said.
Foreign secretary Philip Hammond told BBC radio that one option was to broaden the number of individuals subject to sanctions to include "the so-called crony group" around Putin.
He accused Putin of "obfuscation and obstruction" over the plane crash investigation.
France, Britain and Germany warned Russia on Sunday it could face further EU sanctions if it did not press pro-Moscow separatists in Ukraine to allow unfettered access to the crash site.