"We are not planning to impose any kind of sanctions against Ukraine," Putin said at his annual press conference attended by nearly 1,400 Russian and foreign journalists.
"Ukraine cannot be placed in conditions worse than those of our external partners, but of course, Ukraine will have no benefits or trade preferences with Russia from January 1, 2016."
Yesterday, Putin signed a decree suspending Russia's free-trade agreement with Ukraine as of January 1, the same day Kiev is set to enter a similar trade deal with the European Union.
In practice, Ukrainian goods destined to the Russian market will be subjected to customs tariffs of an average of 7 percent, Putin said.
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"We fought for this not to happen, but no one listened to us," Putin said.
Relations between Moscow and Kiev plummeted after the ouster of a Kremlin-backed president in early 2014, a year that also saw Russia's annexation of Crimea and the start of fighting between government troops and pro-Russia rebels in east Ukraine.
Ukrainian President Petro Poroshenko said yesterday in Brussels that Russia's decision to annul the free trade agreement would hurt his country's economy but that it would press on with efforts to join a European Union free trade zone.
The Kremlin has also vowed to sue Ukraine if it defaults on its USD 3 billion debt to Russia.
Earlier this month Moscow also blasted the International Monetary Fund's (IMF) change of a rule that would have blocked its financial aid programme to Ukraine in the event the country defaulted on its debt to Russia.