Russia on Monday ignored Western calls to release three Ukrainian naval ships and their crews it fired on and captured near Crimea at the weekend and accused Kiev of plotting with its Western allies to provoke a conflict.
Ukraine in turn accused Russia of military aggression and put its armed forces on full combat alert, saying it reserved the right to defend itself. Ukrainian lawmakers were due to decide later on Monday whether to approve President Petro Poroshenko's call to impose martial law in Ukraine for two months.
With relations still raw after Russia's 2014 annexation of Crimea from Ukraine and its backing for a pro-Moscow insurgency in eastern Ukraine, the crisis risks pushing the two countries towards a wider conflict and there were early signs it was reigniting Western calls for more sanctions on Moscow.
Russia's rouble currency weakened 1.4 percent against the dollar in Moscow on Monday, its biggest one-day fall since Nov. 9, while Russian dollar-bonds fell.
Markets are highly sensitive to anything that could trigger new Western sanctions, and therefore weaken the Russian economy. A fall in the price of oil -- Russia's biggest source of revenue -- has made its economy more vulnerable.
NATO called an emergency meeting with Ukraine on Monday after the alliance's head Jens Stoltenberg held a phone call with Poroshenko. He offered NATO's "full support for Ukraine's territorial integrity and sovereignty." Ukraine is not a member of the US-led alliance.
The European Union, Britain, France, Poland, Denmark, and Canada all condemned what they called Russian aggression.
The stand-off in the Azov Sea is more combustible now than at any time in the past four years as Ukraine has rebuilt its armed forces, previously in disarray, and has a new generation of commanders who are confident and have a point to prove.
Kiev is also strengthened by the knowledge that most Western governments, especially Washington, lean towards Ukraine and are liable to view Russia’s version of events with some scepticism.
The Russian foreign ministry blamed Kiev for the crisis.
"It's obvious that this painstakingly thought-through and planned provocation was aimed at igniting another source of tension in the region in order to create a pretext to ramp up sanctions against Russia," it said in a statement.
"We'd like to warn the Ukrainian side that the policy of provoking a conflict with Russia in the area of the Sea of Azov and the Black Sea, which has been pursued by Kiev in coordination with the United States and the European Union, is fraught with serious consequences."
Russia summoned the ranking diplomat at Kiev's embassy in Moscow over the incident, the foreign ministry said.
The crisis erupted when Russia's border patrol boats belonging to Russia's FSB security service seized two small Ukrainian armoured artillery vessels and a tug boat after opening fire on them and wounding three sailors on Sunday.
The Ukrainian vessels had been trying to enter the Sea of Azov from the Black Sea via the narrow Kerch Strait that separates Crimea from the Russian mainland.
Interfax news agency quoted Russia's human rights commissioner, Tatyana Moskalkova, as saying on Monday that 24 Ukrainian sailors were being detained. Three of the sailors were wounded but were not in a serious condition and were recovering in hospital.
A Reuters witness in Kerch, a port in Crimea, said the three Ukrainian vessels were being held there on Monday.
People in Russian naval-style uniforms could be seen around the vessels, which bore no sign of damage, the witness said.
Domestic politics in Moscow and Kiev adds to the combustibility of the situation. Poroshenko faces a tough re-election fight early next year, with opinion polls showing him trailing his opponents.
Russia's President Vladimir Putin has also seen his high approval rating fall because of unpopular domestic policies. In the past, successful military action beyond Russia’s borders has buoyed his popularity.
Tensions have been long brewing over the Azov Sea. Crimea, on the western shore, is now controlled by Moscow, the eastern shore is Russian territory, and the northern shore is controlled by Ukraine.
Ukrainian vessels have to run a gauntlet of Russian security forces to get from the Black Sea through the bottleneck of the Kerch Strait and into the Azov Sea to reach Ukrainian ports. That bottleneck has become narrower since Russia built a road bridge to connect the Russian region of Krasnodar to Crimea.A bilateral treaty gives both Russia and Ukraine the right to use the Sea of Azov.