Mr Putin told the French and German leaders of his plans in a phone call, telling them he will sign a decree.
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Russian President Vladimir Putin has recognised the independence of separatist regions in eastern Ukraine and paved the way to provide them military support.
The decision is seen as a direct challenge to the West that will fuel fears that Russia could imminently invade Ukraine.
The carefully staged move announced in the Kremlin could lead to new sanctions on Russia and flies in the face of European efforts for a diplomatic solution to the escalating crisis, which has brought East-West relations to a new low and jeopardised trade.
It came amid a spike in skirmishes in the eastern regions that Western powers believe Russia could use as a pretext for an attack on the western-looking democracy that has defied Moscow’s attempts to pull it back into its orbit.
Mr Putin justified his decision in a far-reaching, pre-recorded speech blaming Nato for the current crisis and calling the US-led alliance an existential threat to Russia.
Sweeping through more than a century of history, he painted today’s Ukraine as a modern construct that is inextricably linked to Russia.
He charged that Ukraine had inherited Russia’s historic lands and after the Soviet collapse was used by the West to contain Russia.
Ukrainians shrugged off the move as meaningless, but it remains a fundamental blow to their country eight years after fighting erupted the Donetsk and Luhansk regions between Russia-backed separatists and Ukrainian forces.
After his speech, Mr Putin signed decrees in the Kremlin recognising those regions’ independence and called on lawmakers to approve measures paving the way for military support.
Until now, Ukraine and the West have accused Russia of supporting the separatists, but Moscow has denied that, saying that Russians who fought there were volunteers.
European leaders had urged Mr Putin to not to recognise the regions’ independence, and the EU foreign policy chief threatened possible sanctions if he did. Ukraine’s president convened an emergency meeting of top security officials.
According to the Kremlin, German Chancellor Olaf Scholz and French President Emmanuel Macron voiced “disappointment with such a development” but also “readiness to continue contacts”.
At an earlier meeting of Mr Putin’s Security Council, a stream of top Russian officials argued for recognising the separatist regions’ independence. At one point, one slipped up and said he favoured including them as part of Russian territory — but Mr Putin quickly corrected him.
With an estimated 150,000 Russian troops massed on three sides of Ukraine, the US has warned that Moscow has already decided to invade.
Still, the American and Russian presidents tentatively agreed to a possible meeting in a last-ditch effort to avoid war.
If Russia moves in, the meeting will be off, but the prospect of a face-to-face summit resuscitated hopes that diplomacy could prevent a devastating conflict, which would result in massive casualties and huge economic damage across Europe, which is heavily dependent on Russian energy.
Soon after Mr Putin’s announcement, the European Union’s top officials said the bloc will impose sanctions against those involved in Russia’s recognition of two separatist regions of eastern Ukraine.
EU Commission President Ursula von der Leyen and Council President Charles Michel say in a joint statement that the recognition is “a blatant violation of international law”.
The statement added that the bloc “will react with sanctions” and “reiterates its unwavering support to Ukraine’s independence, sovereignty and territorial integrity within its internationally recognised borders”.
