The United States and Europe have whacked Russia with fresh sanctions for failing to stop tensions soaring in eastern Ukraine, where rebels have seized another town and a pro-Moscow mayor has been badly wounded.

As the West sought stepped up pressure over the worst East-West crisis since the Cold War, the White House on Monday imposed sanctions on seven Russian officials and 17 firms close to President Vladimir Putin.

The European Union was adding 15 names to its own list, diplomatic sources said.

The Kremlin hit back almost immediately, vowing a “painful” response for Washington, in a tit-for-tat rhetorical battle.

Russian Deputy Foreign Minister Sergei Ryabkov told Interfax news agency Moscow was “disgusted” by the US action, which he said showed Washington had “completely lost touch with reality”.

The US said it was prepared to “impose still greater costs” on Russia for what it called its “illegal intervention and provocative actions” in Ukraine.

Among those targeted is Igor Sechin, president and chairman of the board at Rosneft, Russia’s top petroleum company and one of the world’s largest publicly traded oil companies.

Washington is also tightening licencing requirements for certain high-tech exports to Russia that could have a military use.

The Western sanctions are a response to Russia’s perceived lack of action in implementing an April 17 deal struck in Geneva to defuse the crisis.

Washington has threatened to target specific sectors of the Russian economy if the tens of thousands of troops the Kremlin has ordered to the border actually invade Ukraine.

As the sanctions hammer swung at Russia, tensions on the ground in eastern Ukraine showed little sign of easing.

Kalashnikov-toting militants seized the town hall of Kostyantynivka – the latest of more than a dozen towns held by pro-Russian insurgents who were supposed to have disarmed under the Geneva deal.

Some 300 masked men wielding baseball bats attacked a bank in the regional hub of Donetsk owned by a billionaire oligarch and regional governor who has clashed with Putin.

The pro-Moscow mayor shot in the back, Gennady Kernes, of the town of Kharkiv, was in critical condition, with the identity and motive of the gunman who targeted him while he was riding his bicycle were unknown.

Meanwhile, negotiations were still under way to secure the release of a team of international observers from the OSCE, whose capture by rebels on Friday sparked global fury.

The pan-European security organisation held an emergency meeting in Vienna to discuss the rising threat in Ukraine to monitors overseeing the faltering Geneva accord.

The current head of the Organisation for Security and Cooperation in Europe, Swiss President Didier Burkhalter, said: “We don’t want to stop but it is our responsibility to assess the situation steadily …. If there is a change, then we will act.”

On Sunday, the rebels presented the OSCE captives – four Germans, a Pole, a Dane, a Czech and a Swede – to the cameras for a news conference slammed as “repugnant” by Germany.

The Swede, who suffers from diabetes, was released on medical grounds.