Foreign Secretary William Hague has warned the crisis in Ukraine is at a "crucial moment" after local government forces retook an airport from pro-Moscow militia.
He spoke as tensions reached boiling point in the east of the country after Ukrainian troops, to the sound of gunfire, regained control of a small airport near Kramatorsk from pro-Russian separatists.
It was the first military intervention since interim president Oleksandr Turchynov announced an "anti-terrorist operation" to take back buildings seized by pro-Russian groups in eastern Ukraine.
Unconfirmed reports from Russian state television said between four and 11 people were killed at Kramatorsk while Ukrainian armoured personnel carriers, helicopters, and military vehicles have been seen amassing north of Slovyansk, another flashpoint.
With talks due to take place in Geneva on Thursday between Russia, Ukraine, the United States and the European Union, Mr Hague warned Moscow it is in danger of making a "grave miscalculation" in the crisis sparked by the overthrow of President Viktor Yanukovych in February.
Mr Hague said his annual Mansion House speech in the City of London: "In recent days Russia has deliberately pushed Ukraine to the brink, and created a still greater risk of violent confrontation. We call on Russia to stop these actions and to condemn the lawless acts in eastern Ukraine.
"Russia must choose whether it is open to diplomacy and de-escalation, and if it decides otherwise, we must be ready for a different state of relations with Russia in the next 10 years than in the last 20.
"Ukraine can be a bridge between East and West and be able to have good relations with Russia. But that does not entitle Russia to send in its armed groups, thinly disguised, to spearhead the occupation of buildings in multiple Ukrainian cities, to try permanently to destabilise the country and dictate the terms of its constitution.
"My message to Moscow is that if anyone thinks they can do these things without serious long-term consequences they are making a grave miscalculation."
With pro-Moscow activists continuing to occupy a string of police stations and other public buildings across eastern Ukraine, Mr Hague said Russia is already paying a "severe price" for its actions.
More than 63 billion dollars (£38 billion) in capital has already left the country "as investors draw their own conclusions" about the economic implications, while the EU is preparing a package of far-reaching economic sanctions in the event of any further escalation.
European countries are now much more likely to take action to reduce their dependence on Russian energy supplies, he said, while Moscow's actions have only served to strengthen Nato unity.
At the same time President Vladimir Putin is undermining his own ambition to lock Russia's neighbours into its economic and political orbit by showing the dangers of relying on a "bullying neighbour" with no respect for the sovereignty of others.
Mr Hague said: "In all these areas the Russian government is now at risk of undermining its own influence, and steadily disconnecting Russia from the international community.
"The Russian people stand to lose most of all, if their government continues on this path of the destabilisation of Ukraine."