Western countries and Japan have suspended their 16-year collaboration with Russia in the G8 group in response to the annexation of Crimea and have threatened sweeping sanctions in the event of any Russian military moves in the region.

The move, a clear and deliberate break from the post-Soviet status quo, was intended to underline Russian isolation. Leaders from the US, UK, France, Germany, Italy, Canada and Japan met in The Hague as the G7 for the first time since Russian was brought into the group in 1998 to seal east-west co-operation and lay the cold war to rest.

The G7 leaders issued a joint statement, under the title of the Hague Declaration,saying they would not attend a planned G8 summit in Sochi in June but would instead convene without Russia in Brussels. The group's foreign ministers would also boycott a planned G8 meeting in Moscow in April. The declaration said Russia's actions were not consistent with the "shared beliefs and shared responsibilities" that had made the formation of the G8 possible.

As Russian troops appeared to mass on Ukraine's eastern border, the G7 statement hinted at much broader sanctions if Russia made further expansionist moves.

"We remain ready to intensify actions including co-ordinated sectoral sanctions that will have an increasingly significant impact on the Russian economy, if Russia continues to escalate this situation," the statement said.

The Russian foreign minister, Sergei Lavrov, shrugged off the loss of G8 membership as being inconsequential. "The G8 is an informal club, with no formal membership, so no one can be expelled from it. If our western partners believe that such format is no longer needed, so be it. We aren't clinging for that format and we won't see a big problem if there are no such meetings for a year, or a year-and-half," said Lavrov after his first meeting with his Ukrainian counterpart, Andrii Deshchytsia, at the margins of the global Nuclear Security Summit in The Hague, Netherlands.

The Ukrainian embassy in The Hague said in its account of the meeting: "Lavrov stressed that Russia has no intention of using military force in the eastern and southern regions of Ukraine. The two sides agreed to hold emergency consultations at the level of the ministries of foreign affairs and the ministries of defence of both countries in the case of exacerbation of the situation."

Lavrov said little about the meeting but confirmed he had agreed to maintain contacts with the Kiev government.

Before arriving in The Hague, David Cameron has said that Britain and its Nato allies would help bolster the defences of the alliance's Baltic members, Lithuania, Latvia and Estonia, who have Russian minorities and which fear destabilisation by Moscow.

Obama also sought to deepen Russian isolation in a meeting in The Hague with the Chinese president, Xi Jinping, in which he asked that Beijing at least maintain its stance of neutrality in the stand-off and continue to reaffirm its commitment to the rule of international law and non-interference in the affairs of sovereign states.

US officials acknowledged that Xi had given little by way of formal response to the request, but the Chinese leader appeared to go out of his way to emphasise a warm and personal relationship with Barack Obama, heaping praise on the US president's wife and daughters who have just visited China and jokingly conveyed Michelle Obama's greetings to her husband.

The US deputy national security adviser, Ben Rhodes, stressed that the crisis was not a return to the cold war, because this time Moscow stood virtually alone. "The fact is Russia is leading no bloc of countries. There's no ideological entity, like communism, that Russia is leading that has global appeal," Rhodes said. "There's no bloc of nations, like the Warsaw Pact, that they're leading. They're isolated in what they're doing in Ukraine. And I think that's very much the message that we want to send at the G7, with the EU, with Nato over the course of the next several days."

Britain's foreign secretary, William Hague, described the winding up of the G8 as a "huge blow" adding that Obama had made it clear that "it will then be hard to revive that in the immediate future".

Hague insisted that Britain would play a wholehearted part in the tightening of sanctions if the crisis escalated, despite potential economic costs to the UK.

He said tougher sanctions would mean that "many countries bear the cost of that in many ways" but "we have to be prepared to do that".

"Every country would have to do what is necessary if more far-reaching sanctions were applied, accepting that that would affect different economies in different ways," he said. "The United Kingdom is certainly prepared to do that. There is nothing that other countries in Europe have proposed that we have blocked. The United Kingdom is fully prepared to play its full part."

Shortly before his meeting with Lavrov, Deshchytsia, the acting Ukrainian foreign minister, had said his government had been seeking a peaceful settlement to a crisis that was in imminent danger of escalating.

"We wanted to find out what they are thinking about Ukraine and what they are thinking of their plans towards Ukraine," Deshchytsia said. "We want to live peacefully with Russia. We want our nations to coexist and they will coexist. So we wanted to sit down around the table and find a solution, maybe drink vodka. But since we don't know their plans, the possibility for a military intervention is very high taking into consideration the intel information about the deployment of a very big number of Russian troops on the eastern borders of Ukraine."

"We are very much worried about the concentration of troops on our eastern borders but at the same time we are ready to defend our homeland. Our military and civilians living in eastern Ukraine – Ukrainians, Russians other nationalities - are ready to defend their homeland, and our military is also ready to defend Ukraine."