BERLIN—Former German Chancellor Gerhard Schröder celebrated his 70th birthday with Russian President Vladimir Putin, sparking criticism Tuesday across the German political spectrum as the U.S. and European Union step up sanctions against Moscow over the Ukraine crisis.

Mr. Putin spoke at a reception late Monday organized by Nord Stream AG, a pipeline operator controlled by Russian gas giant OAO Gazprom. Mr. Schröder is chairman of Nord Stream's shareholder committee.

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