BERLIN—U.S. sanctions have temporarily stopped the construction of a pipeline that is set to increase the flow of natural gas directly from Russia to Germany under the Baltic Sea.

The sanctions would target all businesses and individuals participating in the construction of the pipeline and would effectively cut off those companies from doing business in the U.S. or with U.S.-linked companies. Washington has long opposed the project on grounds that it would increase Germany’s and Europe’s dependence on Russian energy and...