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Russia will face further economic sanctions if it continues to support rebels in Ukraine, G7 leaders say.

In a statement on Wednesday, the G7 group of economic powers said Russia had undermined “Ukraine’s sovereignty, territorial integrity and independence.”

The warning came after the EU added eight more Russians to its sanctions.

Earlier, Russia described new US and EU sanctions as “destructive and short-sighted”, and said they would lead to higher energy prices in Europe.

G7 leaders say Russia will face further economic sanctions if it continues to support rebels in Ukraine

G7 leaders say Russia will face further economic sanctions if it continues to support rebels in Ukraine

The G7 group includes the US, Canada, France, Germany, Italy, Japan and Britain.

Its leaders said Russia could still “choose the path of de-escalation,” but warned President Vladimir Putin that he would face greater economic costs if he continued to back Ukrainian separatists.

They also called on all sides to establish a ceasefire at the crash site of the Malaysian Airlines jet that was shot down on July 17 in eastern Ukraine.

Russia has come under increased pressure to end its support for the rebels, who Western governments believe were behind the downing of MH17, killing all 298 people on board.

Vladimir Putin has also been accused by the US and EU of supplying heavy weapons to the rebels – a charge his government has denied.

On Tuesday, the US announced new economic sanctions against Russia, widening their scope to include three key sectors of the economy – energy, arms and finance.

The EU is also expanding its sanctions, targeting the oil sector, defense equipment and sensitive technologies.

Details of new EU sanctions are due to be published on Thursday.

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The G7 powers have agreed to impose fresh sanctions on Russia over its actions in Ukraine.

A G7 statement gave no detail of the sanctions, but US officials said they could announce measures by Monday.

The West accuses Russia of leading a secession rebellion in Ukraine’s east, months after it annexed Crimea. Moscow denies the allegations.

Meanwhile, negotiators are trying to secure the release of international observers seized by pro-Russia gunmen.

Forces in the city of Sloviansk are still holding the eight European military observers and several Ukrainian army personnel who they seized on Friday and accuse of espionage.

The observers were taking part in a mission linked to the Organization for Security and Co-operation in Europe (OSCE).

Forces in Sloviansk are holding eight European military observers and several Ukrainian army personnel

Forces in Sloviansk are holding eight European military observers and several Ukrainian army personnel (photo AFP)

Rebel militia continue to occupy official buildings in a dozen eastern cities, defying the government in Kiev.

Russia has tens of thousands of troops deployed along its side of the border with Ukraine and has said it would act if its interests were threatened.

The US accused Russian jets of violating Ukraine’s airspace on Friday in a further sign of escalation.

Pentagon spokesman Col. Steven Warren said Russian aircraft had entered Ukrainian airspace several times in the past 24 hours.

Meanwhile, the G7 praised Ukraine for acting with restraint in dealing with the “armed bands” that had occupied government buildings.

But the group, which includes the US, UK, Germany, Japan, France, Canada and Italy, condemned Russia’s “increasingly concerning rhetoric and ongoing threatening military maneuvers”.

“Given the urgency of securing the opportunity for a successful and peaceful democratic vote next month in Ukraine’s presidential elections, we have committed to act urgently to intensify targeted sanctions and measures to increase the costs of Russia’s actions,” said the statement.

The US and EU already has assets freezes and travel bans in place target a number of Russian individuals and firms accused of playing a part in the annexation of Crimea.

On Friday, Ukraine’s interior ministry said armed separatists had seized OSCE representatives, who were believed to be military observers from Germany, Denmark, Poland, Sweden and the Czech Republic.

Pro-Russian leaders in Sloviansk confirmed the bus had been stopped near the town of Sloviansk and said they were checking the identities of those on board.

The self-proclaimed mayor of Sloviansk, Vyacheslav Ponomaryov, said at least one passenger had been carrying maps showing separatist checkpoints in the area, which suggested “their involvement in espionage”.

Last weekend, Vyacheslav Ponomaryov broadcast an appeal to President Vladimir Putin asking for Russian troops to protect the city from “fascists” after three of his men died in a gunfight.

Russia’s OSCE envoy Andrei Kelin promised to take “all possible steps” to free the representatives, according to Russian media reports.

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The G7 leaders have called on Russia to stop all efforts to “annex” Ukraine’s Crimea region.

G7 said if Russia took such a step they would “take further action, individually and collectively”.

They also said they would not recognize the results of a referendum in Crimea this weekend on whether to split from Ukraine and join Russia.

Meanwhile, Ukraine’s national security chief has warned of a major Russian military build-up on Ukraine’s borders.

Andriy Parubiy said Moscow had not withdrawn its troops after carrying out military exercises near Ukraine’s eastern and southern frontiers last month.

The Group of Seven industrial nations – Britain, Canada, France, Germany, Italy, Japan and the US – along with the EU urged Russia to “cease all efforts to change the status of Crimea”.

G7 said Crimea's referendum has no legal effect as it is in direct violation of Ukraine's constitution

G7 said Crimea’s referendum has no legal effect as it is in direct violation of Ukraine’s constitution

“In addition to its impact on the unity, sovereignty and territorial integrity of Ukraine, the annexation of Crimea could have grave implications for the legal order that protects the unity and sovereignty of all states,” they said in a statement released by the White House.

They said Sunday’s referendum, asking the people of Crimea if they want to be a part of Russia or Ukraine, has “no legal effect” as it is in “direct violation” of Ukraine’s constitution.

“Given the lack of adequate preparation and the intimidating presence of Russian troops, it would also be a deeply flawed process which would have no moral force.”

The leaders repeated their calls for Russia to de-escalate the crisis by withdrawing its troops, talking directly with Kiev and using international mediators to “address any legitimate concerns it may have”.

US Secretary of State John Kerry says he has been asked by President Barack Obama to travel to London for talks with Russian Foreign Minister Sergei Lavrov on Friday.

“Our job is to present them with a series of options that are appropriate in order to try to respect the people of Ukraine, international law and the interests of all concerned,” John Kerry told the House Appropriations Committee on Foreign Operations.

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