Russia is to expel four UK embassy staff in the row over Moscow's refusal to extradite the man suspected of Alexander Litvinenko's murder.
Andrei Lugovoi has denied involvement in the murder
The four must leave Russia within 10 days, and Moscow is to review visa applications for UK officials.
UK Foreign Secretary David Miliband said he was "disappointed" by what he called a "completely unjustified" move.
But Russian President Vladimir Putin said he thought both countries would overcome the "mini crisis".
On Monday four Russian embassy staff were expelled from the UK and the visa facilitation process for Russian officials was suspended.
The move was a response to Moscow's refusal to extradite the man suspected of murdering former KGB agent Alexander Litvinenko in London in November 2006.
Announcing the tit-for-tat response, foreign ministry spokesman Mikhail Kamynin said Moscow would not apply for any UK visas for Russian officials.
He said: "The position of the Brown government is not based on British common sense and reasoning."
At the Moscow news conference he added: "The measures declared by London recently makes co-operation between Russia and the UK impossible... in the war on terror."
But President Putin added later: "I think relations between Russia and Britain will develop normally because both countries are interested in this."
"It is necessary to measure one's actions against common sense, respect the legitimate interests of partners and everything will be all right. I think we will overcome this mini crisis."
The prime minister's official spokesman told reporters that Downing Street was examining the implications of non co-operation on terrorism.
Earlier Tony Brenton, Britain's ambassador in Moscow, was summoned to Russia's foreign ministry and given "certain messages" to pass on to the Foreign Office in London.
KEY EVENTS IN CASE
1 November 2006: Alexander Litvinenko meets Andrei Lugovoi and another Russian at a London hotel
23 November 2006: Litvinenko dies in a London hospital
24 November 2006: A Litvinenko statement accuses Russian President Vladimir Putin of involvement in his death. Experts say Litvinenko was poisoned
6 December 2006: UK police say they are treating the death as murder
22 May 2007: Lugovoi should be charged with Litvinenko's murder, British prosecutors say
28 May 2007: UK makes formal request for Lugovoi's extradition from Russia
Speaking in London, Foreign Secretary David Miliband said: "We are now studying these measures very carefully to ensure that we understand the detail.
"We are disappointed that the Russian government should have signalled no new co-operation in the case of the extradition of Mr Andrei Lugovoi for the alleged murder of Alexander Litvinenko."
He added that the decision to expel four British embassy staff was "completely unjustified" and help would be given to them and their families.
But he said he had been heartened by support from the "international community" and "positive statements about the need to defend the integrity of the British judicial system".
US Secretary of State Condoleezza Rice said earlier: "This is an issue of rule of law to our minds, not an issue of politics."
"It is a matter of Russia co-operating fully in what is simply an effort to solve what was a very terrible crime committed on British soil."
Mr Litvinenko, an ex-KGB agent who had taken UK citizenship, died of exposure to radioactive polonium-210 in London in November 2006.
Traces of the radioactive isotope was found in several places visited by another former agent, Andrei Lugovoi.
Mr Lugovoi denies involvement and says he is a witness, not a suspect in the case and has told Russian television that the outcome of the inquiry had been predetermined.
Under the European Convention on Extradition 1957, Russia has the right to refuse the extradition of a citizen and its constitution expressly forbids it from doing so.
The UK has the right to request Mr Lugovoi be tried in Russia, but the UK's director of public prosecutions, Sir Ken Macdonald, has already turned down the offer.
The UK's director of public prosecutions has recommended Mr Lugovoi be tried for murder by "deliberate poisoning".