Nato is not seeing a Russian troop pullout from the border with Ukraine, the military alliance's chief has said.
Anders Fogh Rasmussen again stressed that the best way to solve the crisis was through "a political dialogue".
Nato foreign ministers are now discussing ways to help Ukraine and also reassure allies in Eastern Europe.
This comes after Russia's takeover last month of Ukraine's Crimea region. Meanwhile, Moscow warned Kiev against integration with Nato.
It is the first time ministers from the 28-member Nato bloc have convened since the annexation of Crimea.
The alliance has also bolstered air drills to be held over the Baltic states.
On Monday, Russian President Vladimir Putin told German Chancellor Angela Merkel he had ordered a partial withdrawal of Russian troops near the eastern border of Ukraine, according to the German government.
Moscow is believed to have massed tens of thousands of soldiers there in recent days, causing alarm in Kiev and the West.
Russian energy firm Gazprom is increasing the price it charges Ukraine for gas from Tuesday.
Gazprom's chief executive Alexei Miller said the price of Russian gas for Ukraine had gone up to $385.5 (£231) per 1,000 cubic metres in the second quarter of 2014 from the previous rate of $268.50.
Mr Miller added that Ukraine's unpaid gas bills to Russia stood at $1.7bn.
In other developments on Tuesday
- Ukraine's parliament ordered security services to disarm all "illegal armed groups", following Monday night's shooting in Kiev that involved a member of the radical Right Sector group
- MPs in Kiev voted to allow to hold joint military exercises with Nato and other nations on Ukrainian soil
- Russia's upper house of parliament voted to pull out of a treaty with Ukraine on the Black Sea Fleet's presence in Crimea
Tensions between the Kremlin and the West rose after the overthrow of pro-Kremlin Ukrainian President Viktor Yanukovych in February, following months of street protests.
Russia's subsequent decision to annex Crimea, after a Moscow-backed referendum that was later condemned as illegal by the UN General Assembly, triggered a crisis in relations.
The US and EU have imposed sanctions on members of President Putin's inner circle and other officials. Russia has retaliated with its own sanctions on US politicians.
"Unfortunately, I cannot confirm that Russia is withdrawing its troops," Mr Rasmussen told reporters. "This is not what we are seeing."
He said Moscow had undermined the principles on which a Nato-Russia partnership was built, adding that there could be no more "business as usual".
"Russia's aggression against Ukraine challenges our vision of a Europe whole free and at peace," Mr Rasmussen said.
Nato foreign ministers later agreed the formal suspension of co-operation with Moscow at their meeting in Brussels.
At a brief public session ahead of the meeting going into closed session, Mr Rasmussen praised what he termed the "exemplary restraint" shown by the Ukrainian government and military, and welcomed the advent of "solid democracy" in Ukraine.
He concluded by saying: "The only path to follow is the political and diplomatic path."
In an earlier statement, Nato said ministers would speak to acting Ukrainian Foreign Minister Andriy Deshchytsia about ways to support Ukraine with its defence reforms.
In Moscow, the Russian foreign ministry warned Kiev against any attempts to join Nato, saying such efforts in the past had "led to a freezing of Russian-Ukrainian political contacts, a 'headache' in Nato-Russia relations and... a deepening split within Ukrainian society".
In Brussels, the Nato ministers are looking at options including situating permanent military bases in the Baltic states to reassure members in Eastern Europe.
Russia's actions in Ukraine have rattled nerves in Estonia, Latvia and Lithuania, which were part of the Soviet Union during the Cold War.
Nato jets will take part in air patrols in the region later in a routine exercise that analysts say has taken on added significance due to the crisis.
Several Nato countries, including the UK, US and France, have offered additional warplanes.