US President Barack Obama and German Chancellor Angela Merkel delivered the statement after talks at the White House appeared to bring the prospect of "sectoral" economic sanctions closer than ever before.

The joint declaration effectively amounted to a new standard for the imposition of "sectoral" sanctions on Russia's economy. Previously the administration has said such measures would only come into force for a provocation on the order of Russia invading Ukraine.

"If in fact, we see the disruptions and the destabilization continuing so severely that it impedes elections on May 25, we will not have a choice but to move forward with additional... severe sanctions," Obama said.

"If Russia continues on its current course, we have a range of tools at our disposal, including sanctions that would target certain sectors of the Russian economy," Obama said.

Such measures, already being worked on by experts in the United States and Europe would likely target economic activity including in the financial, energy and mining sectors which are vital to the Russian economy.

Merkel, facing severe political pressure from German business groups wary that new sanctions could damage their close ties with Russian industry, also warned Russian President Vladimir Putin that May 25 was "a very crucial date."

"The 25th of May is not all that far away. Should that not be possible to stabilize the situation further, sanctions will be unavoidable," Merkel said.

"It's very much up to the Russians which road we will embark on, but we are firmly resolved to continue to travel down that road."

Even though both sides now agree that sectoral sanctions may be necessary, the definition and exact targeting of those measures will be crucial and could be broad.

Europe's measures will be closely watched from the United States to see if they appease influential business interests at the expense of effectiveness.

The talks at the White House took place as fresh instability and violence rocked eastern Ukraine and Moscow warned that Kiev must halt an operation against pro-Kremlin groups.

Obama also warned Russia over the fate of a group of Organization for Security and Cooperation in Europe (OSCE) observers, including four Germans, who have been captured by pro-Moscow militias in eastern Ukraine.

"They've been paraded in front of the media and forced to make statements at the barrel of a gun. It is disgraceful and it's inexcusable. Russia needs to work to secure their immediate release," Obama said.

The US president also showed some sensitivity to Merkel's task of bringing all members of the European Union along with sanctions -- at a time when the regional economy is barely recovered from the worst financial crisis in decades.

"Within Europe, within the EU, I'm sure there has to be extensive consultations.

"You have got 28 countries and some are more vulnerable than others to potential Russian retaliation, and we have to take those into account.

"Not every country is going to be in exactly the same place, but what has been remarkable is the degree to which all countries agreed that Russia has violated international law, violated territorial integrity and sovereignty of a country in Europe, and I think there is unanimity that there has to be consequences for that."