Ukraine's military is on high alert, as Russian forces now have "complete operational control" of the Crimea region.
However, Russia's President Vladimir Putin has agreed to enter into political dialogue.
David Cameron tonight tweeted that he had spoken to US President Barack Obama and both agreed Russian actions in the south of Ukraine were unacceptable. He also warned there would be "significant costs" if the Kremlin did not change its course.
I spoke to @BarackObama tonight. We agreed Russia's actions are unacceptable & there must be significant costs if they don't change course.
— David Cameron (@David_Cameron) March 2, 2014
Putin accepted German Chancellor Angela Merkel's proposal to establish a commission of enquiry and a contact group.
It comes as Ukraine is investigating it's new navy chief for treason, after he switched allegiance to the Pro Russian Crimea region.
NATO is now urging Russia to withdraw its forces from the area - expressing 'grave concern' over the use of military action.
After an emergency meeting in Brussels, it's called on both parties to seek a peaceful solution through dialogue.
Nato Secretary General Anders Fogh Rasmussen has this message for the Kremlin.
Meanwhile it's been revealed that British government ministers are to boycott the Paralympics in Sochi over Russia's decision to take military action in Ukraine.
They believe it would be 'wrong' for them to attend because of the 'serious situation' in the country.
The head of Ukraine's navy earlier announced that he has defected to the Pro-Russian authorities in Crimea.
Denis Berezovsky was only appointed to the post by Ukraines interim president yesterday.
In a televised asddress from inside the the Crimean headquarters, he swore allegiance to the residents, of what he called the "Autonomous Republic of Crimea".
US demands
United States President Barack Obama last night demanded Russia withdraw troops from Ukraine.
Obama spoke to Russian President Vladimir Putin in a 90 minute phone conversation last night and told Putin the deployment of troops to Ukraine is in violation of international law. Putin stood firm in insisting Russia is within its rights to protect Russian citizens and interests in the neighbouring nation.
The White House said last night, "President Obama expressed his deep concern over Russia's clear violation of Ukrainian sovereignty and territorial integrity” and that military incursion into Ukraine is a "breach of international law, including Russia's obligations under the UN Charter, and of its 1997 military basing agreement with Ukraine.”
Ukraine has put its military on full alert and warned that any military action by Russian forces will be an act of war, and lead to the end of relations between the two countries. Arseny Yatseniuk, the Ukrainian Prime Minister, called for dialogue between the nations and for Russian soldiers to return to Russian bases in Crimea, in accordance with agreements already in place between the countries. "Military intervention would be the beginning of war and the end of any relations between Ukraine and Russia," Yatseniuk said.
The Kremlin detailed Mr. Putin’s claims of Russia’s right to enter Ukraine, saying in a statement that during the conversation with President Obama Mr Putin: "underlined that there are real threats to the life and health of Russian citizens and compatriots on Ukrainian territory"
UN Secretary-General Ban Ki-moon is urging restraint on all sides:
Britain has now pulled out of preparatory meetings for the G8 summit, in protest over Russia's involvement in the Ukraine crisis.
The Foreign Secretary William Hague says they have suspended their cooperation for the summit, which Russia chairs this year.
Meetings are due to be held this week in preparation for the G8 meeting.
