A rift appeared to be opening up on Monday night between the US and Europe on how to punish Vladimir Putin for his occupation of Ukraine's Crimea peninsula, with European capitals resisting Washington's push towards tough sanctions.

With the Americans, supported by parts of eastern Europe and Sweden, pushing for punitive measures against Moscow, EU foreign ministers divided into hawks and doves, preferring instead to pursue mediation and monitoring of the situation in Ukraine and to resist a strong sanctions package against Russia.

On Monday night the White House announced it was suspending military ties and co-ordination with Russia, covering bilateral activities such as exercises and port visits. Barack Obama said the White House was "examining a whole series of steps – economic, diplomatic – that will isolate Russia and will have a negative impact on Russia's economy and status in the world".

On the ground in Crimea, Russian forces continued to tightentheir stranglehold, intimidating and surrounding Ukrainian marines in an attempt to force them to surrender without shots being fired. There were further ominous developments in eastern Ukraine, where pro-Russian crowds forced their way into a number of government buildings.

Barack Obama talks on the phone in the Oval Office with Russian president Vladimir Putin about the situation in Ukraine. Photograph: The White House/Getty Images

Obama said the US state department was reviewing its entire portfolio of trade and co-operation with Moscow, including preparing a raft of possible measures targeting senior government and military officials implicated in the invasion of the peninsula. Obama said the condemnation from other countries aimed at Russia "indicates the degree to which Russia's on the wrong side of history on this".

The president is expected to use his executive authority to bypass Congress to quickly target senior Russian officials. But Washington is clearly aware it may struggle to rally support for punitive measures from Europe.

"The most important thing is for us – the United States – to make sure that we don't go off without the European community," the majority leader in the Senate, Democrat Harry Reid, told Politico. "Their interests are really paramount if we are going to do sanctions of some kind. We have to have them on board with us."

But at an emergency meeting in Brussels the foreign ministers of Germany, France, Italy and Spain resisted calls for trade sanctions, instead limiting discussion to freezing long-running talks with Russia on visa liberalisation that would have made it easier for Russians to visit Europe. Washington is also threatening to kick Russia out of the G8 group of leading economies, but Berlin opposes that.

The secret government document, which reveals Britain's attempts to ensure any EU action against Russia over Ukraine would exempt the City of London

Britain's attempts to ensure any EU action against Russia over Ukraine would exempt the City of London were embarrassingly revealed when a secret government document detailing the plan was photographed in Downing Street. The document said Britain should "not support, for now, trade sanctions … or close London's financial centre to Russians".

Like other EU countries, and especially Germany, which obtains almost 40% of its gas and oil from Russia, the UK is reluctant to adopt measures that could damage its still fragile economic recovery.

In any event, further discussion of EU sanctions are likely to have to wait until an emergency leaders summit in Brussels on Thursday.

Rather than stronger sanctions Berlin is pushing the idea of a "contact group", under the auspices of the democracy watchdog the Organisation for Security and Co-operation in Europe, to go to Ukraine and monitor the grievances of both sides following the Russian seizure of Crimea, achieving its aims without a shot being fired. But no decision was taken on an OSCE "factfinding mission".

Armed men stand guard at the local government headquarters in Simferopol in Crimea. Photograph: David Mdzinarishvili/Reuters

As the Russians consolidated their hold on Crimea and the US administration conceded the peninsula was under complete Russian control, there were contradictory reports of an ultimatum to remaining Ukrainian forces to surrender their weapons by early on Tuesday .

Senior Russian government figures insisted they wanted to avoid a war in Ukraine, but also demanded a new and "more inclusive" government in Kiev and that the policies of the country would have to take account of Russian interests.

The costs of the conflict to Putin became quickly apparent. The rouble fell 2% against the dollar and $55bn (£33bn) was wiped off the Russian stock exchange on Monday as the instability shattered investors' confidence. The value of Gazprom, Russia's energy giant, whose exports to Europe go via Ukraine, fell by $12bn.

As the US secretary of state, John Kerry, headed for Kiev, the Russian foreign ministry accused him of being a cold warrior and demanded the reinstatement of the toppled president, Viktor Yanukovych, who fled Kiev for Russia on 21 February. Moscow said that an agreement that would have kept him in office for the rest of the year, negotiated last Friday, should be reactivated.

But at the Kiev negotiations Russia was the sole party not to support the deal and refused to sign it. It was signed by the German, Polish, and French foreign ministers.

Senior US officials dismissed claims that Washington was incapable of exerting influence on the Russian president, but were forced to admit Crimea had been successfully invaded by 6,000 airborne and ground troops in what could be the start of a wider invasion. "They are flying in reinforcements and they are settling in," said one senior official. Another said: "Russian forces now have complete operational control of the Crimean peninsula."

Russian navy crew members on a patrol boat guard Russian military ships in the port of Sevastopol on Sunday. Photograph: Maxim Shipenkov/EPA

On Monday morning, Russian soldiers were reported to have further cemented their control of the region overnight, having seized a ferry terminal in the Ukrainian port city of Kerch, about 12 miles from Russia.

The soldiers were reported to be Russian-speaking, driving vehicles with Russian number plates, but refused to confirm their identity. Residents of the neighbouring port town Nikolayev reported Russian troops had arrived overnight, intensifying fears Moscow will send further soldiers beyond Russian-speaking Crimea into eastern Ukraine.

Russia's Interfax news agency reported that Russian fighter jets twice violated Ukraine's air space over the Black Sea during the night. It said Ukraine's air force had scrambled a Sukhoi Su-27 interceptor aircraft and prevented any "provocative actions".

Ukrainian border guards reported a buildup of armoured vehicles near a ferry port on the Russian side of the Kerch channel – a narrow sea lane dividing Russia and Ukraine.

Ukrainian soldiers guard the entrance of a military base in the Crimean city of Bakhchisaray. Photograph: Genya Savilov/AFP/Getty Images

A statement from the guard spokesperson said Russian ships had also been moving in and around the city of Sevastopol, where the Russian Black Sea fleet has a base, and that Russian forces had blocked telephone services in some areas.

German officials denied US reports that the chancellor, Angela Merkel, following a phone conversation with Putin, had told Obama that the Russian leader had lost touch with reality.

While the alarm is high, there is also relief in western capitals that the crisis has not yet turned into a shooting war.

"The real danger is that someone just loses their nerves, not out of political reasons, but because it's so tense," said Frank-Walter Steinmeier, the German foreign minister.

Hopes of a possible way out of the crisis were raised in New York on Monday when Russia called an emergency session of the UN security council, prompting speculation among Western governments that Moscow was preparing to compromise.

In the event, however, the two-hour meeting descended into a verbal slanging match between the Russian ambassador Vitaly Churkin and his counterparts for the US, UK and France.

In highly undiplomatic language rarely heard in the august security council chamber, a succession of ambassadors accused Russia of flagrantly violating international law and its own duties as a permanent member of the UN body. Several members also accused Churkin of fabricating claims of violence against Russian speakers in Crimea to justify Moscow's military intervention.

"So many of the assertions made this afternoon are without basis in reality," said Samantha Power, the US representative. "Is Russia justified in invading parts of Ukraine? The answer of course is no. Russian mobilisation is a response to an imaginary threat."

The French ambassador, Gerard Araud, said the Crimea action reminded him of the 1968 Soviet invasion of Czechoslovakia when he was 15. "Russia seems to be coming back to its old ghosts playing an old fashioned role in an outdated setting."

In comments after the meeting ended, Araud said the outcome was "very disappointing. We are 50 years back."

The UK ambassador, Sir Mark Lyall Grant, said hopes for the meeting had been dashed. "We saw nothing about any openness to try and find a political path to de-escalate the situation," he said.

For his part, the Russian ambassador was unapologetic and unbending. Churkin said that Viktor Yanukovich, the ousted president of Ukraine, remained the legitimate head of state, and he described the leaders of the new government in Kiev as "radical nationalists" and anti-Russians.

He asked other council members to imagine that the US Congress had impeached President Obama while he was out of the White House and on a trip to California. "Would that be democratic?" he said.

He also reminded the French that they had imposed measures to prevent peaceful protesters from wearing masks in the street, and the Americans that their former president Ronald Reagan had invaded Grenada in 1983 to protect 1,000 Americans. "We have millions living there [Russian speakers in Crimea] and we are protecting their concerns."

Former US presidential candidate Senator John McCain said he was "disappointed" by the UK's position and said European countries were "ignoring the lessons of history". Asked if it was right to avoid such sanctions, he said: "Of course not. I am not astonished, to be very frank with you. Disappointed but not astonished."

The present situation was "the result of five years of naive relations with Russia, not the beginning of it", he said.

"If the Europeans decide that the economic considerations are too important to impose severe sanctions on Vladimir Putin - which you get from the statement by Angela Merkel today - then they are ignoring the lessons of history," he added - comparing Mr Putin's actions with those of Hitler in 1938.