Russia's Vladimir Putin says he is recognising breakaway rebel regions in Ukraine's east as independent states.
The self-declared people's republics of Donetsk and Luhansk are home to Russia-backed rebels who have been fighting Ukrainian forces since 2014.
Russia's move is likely to end peace talks in the region, which has been under a tenuous ceasefire for years.
Western powers also fear it could pave the way for Russian military forces to enter Ukraine's eastern regions.
UK Prime Minister Boris Johnson said it would be "a flagrant violation of the sovereignty and integrity of Ukraine" and break international law. He said it was "a very ill omen and a very dark sign".
The EU said it would "react with unity, firmness and with determination in solidarity with Ukraine".
The move deepens the ongoing crisis in Ukraine, which is surrounded by more than 150,000 Russian troops on its borders. Russia says they do not plan to invade but the US believes Mr Putin is preparing an attack.
Russian passports have been given out to large numbers of people in both Donetsk and Luhansk, and Western allies fear that Russia could now move military units into the rebel-held areas under the guise of protecting its citizens.
Speaking in a televised national address immediately after the announcement, Mr Putin said modern Ukraine had been "created" by Soviet Russia, referring to the country as "ancient Russian lands".