The reported shelling of an empty Ukrainian nursery by Russian forces was part of a "false flag operation" as a pretext for an invasion, Boris Johnson has said.
The prime minister's comments come after claims from Ukraine's foreign minister that a village had been "shelled with heavy weapons" from the occupied territory of The Donbas.
Mr Johnson said the situation on the border between Ukraine and Russia is "continuing to be very grim", adding that he was refusing to be "blackmailed" by President Vladimir Putin.
Ukraine's Foreign Minister Dmytro Kuleba claimed the attack on the village of Stanytsia Luhanska has left "civilian infrastructure damaged", while the Ukrainian Ministry of Defence alleged a nursery was hit, injuring three employees.
'We know this was a false flag operation, designed to discredit the Ukrainians''
Meanwhile, separatist official Rodion Miroshnik claimed Ukraine had shelled along the tense line of contact with "heavy" weapons and said rebel forces then returned the fire.
Ukraine disputed the claim, alleging the separatists had shelled its forces, but they didn’t fire back.
Responding to developments in eastern Europe, Mr Johnson said: "A kindergarten was shelled in what we are taking to be - well, we know - was a false flag operation designed to discredit the Ukrainians, designed to create a pretext, a spurious provocation for Russian action.
"We fear very much that that is the kind of thing we will see more of over the next few days.
"What we are doing is making that we do everything to strengthen the package of sanctions that will follow immediately should there be a Russian invasion."
Foreign Secretary Liz Truss, who was in Ukraine on Thursday, echoed the prime minister's warning in a speech, adding that the actions were "straight out of the Kremlin playbook".
She said there was still time for Moscow to "step back from the brink" and to take the path of diplomacy.
"We are ready to talk," she said, "But we are very clear - if they decide to continue down the path of aggression, there will be massive consequences bringing Russia severe economic costs and pariah status."
At the same time, however, she said that, even if Moscow does pull back its forces which have been massing on the Ukrainian border, "the problem will not have gone away".
UK and US intelligence services have been struggling to ascertain facts from the two warring nations, with both Ukraine and Russia accusing each other of carrying out acts of aggression.
ITV News has studied video showing movement towards the Ukrainian border, not away
Despite claims from Russia that it was reducing its military presence near its border with Ukraine, Western security officials say a number of the 14 Russian Battalion Tactical Groups being moved towards Ukraine this week are now in place.
Officials said in a briefing that they were unclear as to whether incidents reported overnight in Ukrainian separatist republics are the start of the staged provocation or false flag events they have been anticipating.
The Ukrainian Ministry of Defence claimed the ceasefire line has been violated 29 times with "prohibited weapons" leaving two civilians and a soldier "wounded".
Britain's Armed Forces minister James Heappey on Thursday accused the Kremlin of "lying" and said he's "worried" that "tens of thousands of people could die".
Prime Minister Johnson told reporters the UK and its allies are "strengthening the eastern frontier of Nato" in response to Russian aggression but said he was planning on tackling Russian money too.
"It's time to bring in some tough sanctions against the Russian regime, against big Russian companies - organisations of strategic importance.
"And also making sure we... stop the raising of funds by Russian companies on London financial markets - that's a very, very tough sanction that we'll be bringing in."
He also urged European nations to end their dependence on Russian energy because "we can't be blackmailed this way by Vladimir Putin - we've got to end that".
The PM added: "There is still time to avoid a catastrophe, a catastrophe for Russia, a catastrophe for Ukraine and for the world.
"If Russia were so mad as to invade, I don't think people should imagine that this would be a brief business.
"This would be a bloody and protracted conflict in which, I'm afraid, there will be many casualties and including many Russian casualties. I just hope that people in Russia can see that."