Vladimir Putin
Russia's President Vladimir Putin reacts during a ceremony with Brazil's President Dilma Rousseff.Reuters

European Union leaders are set to press for deeper sanctions against Russia that could include blocking loans from two European banks for new projects in Russia, according to Reuters news agency, who cited a draft EU statement.

EU leaders met on Wednesday 16 July and are prepared to impose tougher economic sanctions on Moscow amid what it sees as its support for the ongoing insurgency in eastern Ukraine.

The EU has been under pressure from the United States to ramp up sanctions against Russia but the bloc has so far resisted the pressure amid members' concerns over economic ties.

EU leaders will ask its bank, the European Investment Bank (EIB,) to suspend financing of new public projects in Russia, the draft statement said, as cited by Reuters.

EU members will work with other members within the European Bank for Reconstruction and Development (EBRD) to suspend EBRD financing of new projects in Russia, it said.

While Russia is a shareholder of the EBRD and has received sizeable funding from the institution in the past, the EU could gather a coalition to block future financing for Russian public sector projects.

If the move goes ahead, it could significantly damage Russia's finances. The EBRD loaned Moscow €1.8bn last year, while the EIB promised to lend more than €1bn as well.

The US and the EU imposed asset freezes and travel bans on a number of individuals with ties to the Kremlin in the wake of Russia's annexation of Crimea in March.

The allies have accused Russia of backing the separatist insurgency in eastern Ukraine, with Washington pushing Brussels to impose tougher sanctions on Moscow.

The leaders may change the draft text ahead of the summit but it appears that the EU is prepared to tighten the economic screw on Russia.