MOSCOW—Russia will more than double domestic borrowing to plug a hole in the federal budget next year as external borrowing seems to be "improper", the Finance Ministry said Thursday.

Russia's borrowing prospects worsened this year after the Kremlin annexed Ukraine's region of Crimea. Western sanctions against Moscow increased uncertainty about doing business with Russia, while a decision by international credit-rating firms to downgrade Russia's sovereign rating increased the cost of borrowing for the world's largest...