Gazprom, Russia's gas monopoly, says it will cut supplies to Ukraine by 25% on Monday after talks between the two sides ended in failure.
Gazprom said talks with Ukraine had failed
The state-run Russian company said its efforts to get Ukraine to pay its debts had "reached a dead end".
Earlier this month, Russian President Vladimir Putin and Ukraine's Viktor Yushchenko reached an outline deal, but the details could not be agreed.
Western commentators accuse Moscow of using Gazprom as a political tool.
Gazprom said it was ready to continue negotiations over the weekend.
But Ukraine's deputy prime minister said the money had already been transferred and that documents to confirm this had been sent to Gazprom.
"The issue of whether money from intermediaries arrives to Gazprom is Gazprom's business," Oleksandr Turchynov said.
A previous row between the two sides saw Russia cut gas to Ukraine in 2006, also hitting exports to Western Europe.
The European Commission has said it has been assured by Gazprom that supplies to the EU will not be affected by any renewed cut in exports to Ukraine.
Gazprom says it is owed $1.5bn (£770m) in arrears by Ukraine for gas already supplied.
Gazprom spokesman Sergei Kupriyanov said in a statement that talks with Ukraine on Thursday and Friday had failed to produce results.
"Considering that the situation has reached a dead end, to guarantee its own economic interests, Gazprom will reduce its gas supplies to Ukrainian consumers by 25% on 3 March at 1000 [0700 GMT]," the statement said.
Earlier this month, Russian President Vladimir Putin met with his Ukrainian counterpart Viktor Yushchenko to try and settle the payments dispute.
Mr Putin agreed to Ukraine's demands to replace two intermediary gas trading companies through which Ukraine pays for imported gas with a more transparent firm.