France is to suspend delivery of a state-of-the-art Mistral warship to Russia in protest at Moscow's continued role in unrest in eastern Ukraine.

The decision, taken on the eve of the Nato summit in Wales, is a volte-face by the French who previously insisted the contract must be honoured despite opposition from the United States and other allies. It comes as the European Union considers new sanctions against Russia.

Following a defence committee meeting in Paris on Wednesday, a statement from the Elysée Palace said the government could not go ahead with the planned delivery of the warships, citing Moscow's recent actions in eastern Ukraine, where Russia has taken a blatant military role.

"The president of the republic has concluded that despite the prospect of a ceasefire, which has yet to be confirmed and put in place, the conditions under which France could authorise the delivery of the first helicopter carrier are not in place," the statement said.

France is building two of the Mistral-type helicopter carriers for Moscow at a shipyard in Saint Nazaire. The controversial €1.2bn (£960m)deal was signed in 2011 and the first ship, the Vladivostok, was due to be delivered next month. There are currently 400 Russian sailors – making up two crew – in France carrying out training and sea trials on the vessel.

The rear half of the ship was built by a Russian shipyard at St Petersburg and towed to France where it was assembled in July 2013.

A second Mistral , the Sevastopol – named after the Black Sea port in the Crimea, which has been annexed by Moscow – was due to be delivered by the end of next year. On August 20, French president François Hollande told Le Monde that sanctions against Russia did not prevent handing over the Mistral amphibious assault ships to Russia.

America criticised the deal once again on Wednesday as European diplomats considered tightening sanctions against Moscow.

The decision to put the ship delivery on hold will not have been taken lightly. Moscow has threatened to hit France with punitive financial penalties if it does not honour the contract.

There are also concerns in Saint-Nazaire that any eventual decision to cancel the sale would lead to the loss of between 600 and 1,000 shipbuilding jobs and thousands more among subcontractors in a region where unemployment already tops 14%.

The Mistral – a 180-metre, 22,000-tonne vessel – is capable of carrying 16 helicopters, four landing craft, 60 armoured vehicles, 13 battle tanks and between 450 and 700 soldiers for up to six months and will give the ageing Russian naval fleet a new lease of life. The vessel is known by the French navy as a military "Swiss army knife" for its multiple attack capabilities and use as a command centre, hospital as well as helicopter and troop carrier. The Russians have taken an option on a further two Mistral warships.

In 2008, Vladimir Vysotsky, head of the Russian navy, said his forces would have been victorious in Georgia "in just 40 minutes" if his ageing Black Sea fleet had been equipped with the French warships.

Shortly afterwards, Putin said during a visit to Paris: "I can assure you that if we purchase this armament, we will use it wherever deemed necessary."

At the time of the deal both Washington and several of Russia's neighbours, including the three Baltic states, criticised Paris's decision to sell the warships to Moscow, which was still referring to Nato as an enemy.