The move – which also covers two Kremlin-controlled areas of Georgia – means Russian travel documents given to residents of those regions cannot be used to get visas or to enter the Schengen zone.
“This decision is a response to Russia’s unprovoked and unjustified military aggression against Ukraine and Russia’s practice of issuing Russian international passports to residents of the occupied regions,” the European Council said in a statement.
The move still needs to be formally signed off by the European Parliament and EU member states.
In September, Russian President Vladimir Putin laid claim to four regions of Ukraine in a unilateral declaration widely rejected by the international community.
Moscow also annexed Ukraine’s Crimea peninsula in 2014.
The Kremlin’s grip over some of the occupied territory has been slipping in the face of a fightback by Kyiv’s forces.
On Wednesday, Russia’s defence minister ordered troops to withdraw from the key city of Kherson in a major blow to Putin’s attempted land grab in Ukraine.