Barack Obama has claimed his Russian counterpart Vladimir Putin is trying to bring back the Soviet empire and is putting the Russian economy in peril.

Obama warned that Washington would increase sanctions against Russia unless Putin put an end to his aggression in Ukraine.

"He's got to make a decision," said Obama at the G7 summit in Germany. "Does he continue to wreck his country's economy and continue Russia's isolation in pursuit of a wrong-headed desire to recreate the glories of the Soviet empire, or does he recognise that Russia's greatness does not depend on violating the territorial integrity and sovereignty of other countries?"

The Daily Telegraph described the comments as Obama's "strongest language to date" in speaking out against Putin's policies.

Moscow has repeatedly denied that its troops are fighting in Ukraine. But Obama said Russia's actions in the eastern European country were "hurting Russia and hurting the Russian people".

He added: "The G7 is making it clear that if necessary we stand ready to impose additional significant sanctions against Russia."

The US President was speaking out after Russian-backed separatists clashed with Kiev's troops in the most serious violations of a ceasefire agreed in Minsk in February.

German Chancellor Angela Merkel also said that G7 leaders were prepared to "strengthen sanctions" against Russia if the situation worsens. She said that leaders did not want the situation to escalate, but believed they should do "everything to move forward the political process of Minsk".

Russia was suspended from the G8 last year in the wake of its occupation and annexation of Ukraine's Crimea region, as well as its alleged backing of separatists in eastern Ukraine.