Russia has reacted with fury after Defence Secretary Michael Fallon warned there was a "real and present danger" that Moscow could repeat the tactics used to de-stabilise Ukraine against the Baltic States.
Deputy foreign minister Aleksandr Lukashevich said his words were "beyond diplomatic ethics" and warned that the Kremlin would "find a way to react".
The furious diplomatic row erupted as the Ministry of Defence disclosed that RAF fighters had again scrambled to intercept long-range Russian bombers off the south coast of England.
Prime Minister David Cameron said Moscow appeared to by trying to make "some sort of a point" and that the RAF response showed the UK was well-prepared to react to any Russian incursion.
In his comments to journalists travelling with him to Sierra Leone, Mr Fallon compared the threat from Russian president Vladimir Putin to Islamic State and warned Nato had to be ready to respond to any further aggression "whatever form it takes".
In a statement reported by the Russia Today website, Mr Lukashevich said his remarks were "absolutely unacceptable".
"His absolutely unacceptable characteristics of the Russian Federation remind me of last year's speech of US president Barack Obama before the UN general assembly, in which he mentioned Russia among the three most serious challenges his country was facing," he said.
"I believe we will find a way to react to Mr Secretary's statements."
The MoD said that Typhoon fighter jets from RAF Coningsby in Lincolnshire had intercepted two Bear bombers off the Cornish coast yesterday afternoon and escorted them until they left the "UK area of interest".
"At no time did the Russian military aircraft cross into UK sovereign airspace," a spokesman said.
Speaking at an event in Felixstowe, Suffolk, Mr Cameron said the incident underlined the readiness of UK forces.
"I think what this episode demonstrates is that we do have the fast jets, the pilots, the systems, in place to protect the United Kingdom," he said.
"I suspect what's happening here is that the Russians are trying to make some sort of a point and I don't think we should dignify it with too much of a response."
Mr Fallon however warned that tensions with Moscow appeared to be "warming up" in the wake of the international stand-off over Ukraine.
The latest incursion by Russian aircraft comes after a Russian warship was intercepted by the Royal Navy close to UK waters and two long-range bombers flew down the English Channel off the coast near Bournemouth.
"It is the first time since the height of the Cold War that has happened and it just shows you the need to respond each time he does something like that," Mr Fallon said.
He expressed concern that the Russian leader could now attempt a repeat of the covert campaign used in the Crimea and eastern Ukraine against the Baltic states of Lithuania, Latvia and Estonia.
That could involve irregular troops, cyber attacks and inflaming tensions with ethnic Russian minorities in nations seen as part of the country's "near abroad" by Moscow.
"Putin is as great a threat to Europe as Islamic State. We've got to be ready for both," he said.
"Nato has to be ready for any kind of aggression from Russia, whatever form it takes. Nato is getting ready.
"You have tanks and armour rolling across the Ukrainian border and you have an Estonian border guard being captured and not yet still returned.
"When you have jets being flown up the English Channel, when you have submarines in the North Sea, it looks to me like it's warming up."
Ukip leader Nigel Farage however blamed the desire of Western governments to expand Nato and the European Union for triggering the latest instability.
"I've looked at what Michael Fallon said today. I have to say there's one missing part to everything that is being said and that is, actually, who was it that really started all this?" he said during a campaign visit in Kent
"I'm not defending Putin's behaviour since, but we still aren't capable of actually admitting that it was us, through expansionism, through wanting Nato and the EU to expand to include the Ukraine, that actually began much of this instability."
The chairman of the cross-party Defence Select Committee backed Mr Fallon's assessment of the threat posed by Russia and urged the leaders of all main political parties to commit to protect spending on the armed forces.
Rory Stewart said the West was on a political "razor edge" over how to respond to Mr Putin, with the risk of inadvertently sparking further conflict on one side and allowing Russian expansionism to go unchecked on the other.
Asked if there was a risk of an unintended escalation in violence, he told BBC Radio 4's World At One: "I think there is always the risk of that.
"But equally there is a risk that if you do nothing you end up with violence. This is the razor edge which Western policymakers need to walk.
"If they do nothing, Putin - who is a real opportunist - will be encouraged to push his luck and see if he can humiliate Nato.
"If, on the other hand, they do too much we could risk provoking an over-reaction."
Endorsing Mr Fallon's comments, Mr Stewart said: "There's no doubt at all that probably the most vulnerable part of the Nato alliance at the moment is the Baltic states."
He urged all parties to write into their manifestos a commitment to spend the 2% of GDP on defence required by Nato to send a message to Mr Putin and prepare to deal with "hybrid threats" such as cyber attacks, irregular troops and propaganda.
"Dealing with these hybrid threats requires much more investment in cyber, in strategic communications and intelligence because these aren't conventional threats, they are things that are going to involve people who are special forces operatives or intelligence operatives able to detect these things happening very quickly in the Baltic," he said.
Mr Cameron later spoke to European Council president Donald Tusk by phone about the violence in eastern Ukraine.
The two men discussed how the EU should respond, a Downing Street spokesman said.
He added: " Both expressed deep concern that since the ceasefire, Russian-backed separatists have continued to attack Debaltseve, forcing the Ukrainian army to conduct an orderly withdrawal, and that the separatists have violated the ceasefire in other locations in Donetsk and Luhansk.
"They agreed that the EU should make clear to Russia that the pro-Russian rebels must abide by the ceasefire.
"Mr Tusk said that the EU will be scrutinising the situation on the ground very closely in the coming days and both leaders agreed that European member states would need to review the EU's response accordingly."