Russian forces controlling the strategic region of Crimea have demanded that the crew of two Ukrainian warships must surrender, according to Ukrainian sources.
Ukrainian defence ministry spokesman Maksim Prauta said four Russian navy ships were blocking Ukraine's anti-submarine warship Ternopil and the command ship Slavutych in Sevastopol's harbour.
He said the Russians ordered the crew to surrender within the hour or face Russians storming and seizing the ships and crew.
The latest escalation comes as Foreign Secretary William Hague warned Russia that there will be "consequences" if it does not pull back in its confrontation over Ukraine.
Following talks in Kiev with interim Ukrainian prime minister Arseniy Yatsenyuk, Mr Hague said the world could not stand back and ignore the incursion by thousands of Russia troops into the Ukrainian territory of Crimea.
"If Russia cannot be persuaded to respect the sovereignty and territorial integrity of Ukraine, there will have to be other consequences and other costs. I am not going to set out today what all of those are. We will act in a united way with other nations in the world," he said.
"Russia should be in no doubt about this. This is something that we take very seriously, that we have to take very seriously, because if this becomes the normal way of behaving in the world, of intruding upon and violating the sovereignty of neighbours, then clearly that would be an even bigger crisis in international affairs."
His visit came amid intensive discussions among EU leaders over their response to the Russian action, while the G7 group of countries condemned Moscow's "clear violation of the sovereignty and territorial integrity of Ukraine".
The G7 has suspended preparations for June's G8 summit in Sochi following the escalation of military action.
In London, Prime Minister David Cameron was due to chair a meeting of the National Security Council to consider Britain's response to the "grave situation" in the region.
Speaking earlier on the BBC Radio 4 Today programme, Mr Hague said the situation represented "the biggest crisis in Europe in the 21st century".
He praised the Ukraine government for showing restraint despite the "provocation", and said he was "very concerned" about action by Russia in other parts of the country.
"Clearly we are very concerned about any possibility of a further move by Russia in other parts of Ukraine," he said.
"There are Ukrainian forces as well as Russian forces in Ukraine. There is a constant risk of miscalculation, of a flashpoint arising there (the Crimea) or in other parts of Ukraine."
The Moscow stock exchange fell about 10% in the first hour of trading this morning, before recovering slightly.The rouble fell to record lows against both the euro and the dollar.
Before his meeting with Ukrainian leaders, Mr Hague walked to Independence Square in Kiev, site of mass protests against ousted president Viktor Yanukovych, before speaking to people manning the barricades and laying flowers, joining growing floral tributes to those who have died in the protests.
The Earl of Wessex pulled out of the Winter Paralympics on the advice of the Government in light of Russia's decision to take military action in Ukraine.
Edward, who is patron of the British Paralympic Association, was due to attend the Sochi Games for three days this week but has cancelled, Buckingham Palace said last night.
Ministers will also boycott the Games, Downing Street said, but the Prime Minister remains "fully supportive of our Paralympic athletes' participation at Sochi".
Diplomatic pressure on Moscow is mounting following Russian president Vladimir Putin's decision to deploy troops to the former Soviet state.
Ukraine has put its military on high alert and appealed for international help to avoid what it fears is a possible wider invasion by Russia.
Russian forces have captured the Crimean Peninsula and there are concerns that it might seek to seize control of other parts of the country.
Mr Yatsenyuk said there was no reason for Russia to invade and warned that "we are on the brink of disaster".
The G7 - made up of Canada, France, Germany, Italy, Japan, the UK and the US - along with the president of the European Council and president of the European Commission, said Russia's actions in Ukraine "contravene" the principles and values of both the G7 and G8.
In their statement today, they called on Moscow to "address any ongoing security or human rights concerns that it has with Ukraine through direct negotiations", offering to facilitate talks.
They said: "As such, we have decided for the time being to suspend our participation in activities associated with the preparation of the scheduled G8 Summit in Sochi in June, until the environment comes back where the G8 is able to have meaningful discussion."