Britain should be prepared to accept a new “cold war” with Russia rather than allow President Putin to “rip up the international rulebook” through his actions in Ukraine, David Cameron warned last night.

In a stark assessment the Prime Minister said that if Russia continued on “its current path” its relationship with the rest of the world would be “radically different in the future”.

Mr Cameron was speaking ahead of the G20 meeting in Brisbane this weekend where he is expected to hold talks with President Putin.

In a speech to the Lord Mayor’s banquet Mr Cameron said he did not accept that a new cold war was inevitable but added that the UK would not back away from further economic and political confrontation with Moscow.

“Mikhail Gorbachev has warned that we are on the brink of a new Cold War. That is not an outcome we believe to be inevitable – and neither is it one we seek,” he said.

“But if Russia continues on its current path, then we will keep upping the pressure and Russia’s relationship with the rest of the world will be radically different in the future.”

Mr Cameron admitted there were those who have believed that the UK should draw a line under Russia’s covert intervention in Ukraine in Britain’s own economic self-interest but he disagreed.

“If we allow such a fundamental breach of our rules based system to go unchecked then in the long run we will suffer more instability and ultimately be worse off as a result.

“So Britain’s engagement is not just morally right, but also in our national and economic interest.”

Mr Cameron insisted that economic sanctions were having an impact and added that unless a stand was taken by the West then the long term consequences for Europe’s security would be far worse.

“Russia’s actions pose a grave danger to the rest of Europe,” he said. “Here in this building – with its history shaped by the Blitz – we shouldn’t need to be reminded of the consequences of turning a blind eye when big countries in Europe bully smaller countries.”