Russian President Vladimir Putin is demanding foreign buyers pay for Russian gas in roubles from tomorrow or else have their supplies cut - a move which Berlin said amounted to "blackmail".
Mr Putin's move, via a decree signed today, leaves Europe facing the prospect of losing more than a third of its gas supply.
Germany, the most heavily reliant on Russia, has already activated an emergency plan that could lead to rationing in Europe's biggest economy.
Energy exports are Russia's most powerful lever as it tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businessmen and associates of the Kremlin in response to its invasion of Ukraine.
Moscow calls its Ukraine action a "special military operation".
President Putin said buyers of Russian gas "must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," or 1 April.
"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either - that is, existing contracts will be stopped," he said in televised remarks.
It was not immediately clear whether in practice there might be a way for foreign firms to continue payment without using roubles, which the European Union and G7 group of states have ruled out.
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With the war exacerbating global fuel prices, US President Joe Biden launched the largest release ever from the US oil reserve and challenged oil giants to drill more to bring down gas prices.
"This is a moment of consequence and peril for the world," Mr Biden said at the White House as he announced a release of 180 million barrels starting in May.
Western governments say President Putin's demand for rouble payments would be a breach of contracts in euros or dollars.
Germany and Austria declared "early warnings" on gas supplies, but no EU country has yet signalled it is facing a supply emergency.
"Russia would have to physically halt gas flows to EU 27 (European Union member states) to force the issue, marking a major escalation not even performed at the height of the Cold War. It would mark another major financial blow to Russia's coffers," said analysts at Fitch Solutions.
Under the mechanism decreed by Putin, foreign buyers would use special accounts at Gazprombank to pay for the gas. Gazprombank would buy roubles on behalf of the gas buyer and transfer roubles to another account, the order said.
A source told Reuters that payments for gas delivered in April on some contracts started in the second half of April and May for others, suggesting the taps might not be turned off immediately.
German Finance Minister Christian Lindner said existing gas contracts were based in euros and payments would continue to be made in that currency.
French economy minister Bruno Le Maire said France and Germany were preparing for the possibility of Russian gas flows being halted. He declined to comment on technical details linked to latest Russian demands for rouble payment.
A European Commission spokesperson has said that Germany and Austria's declarations of an "early warning" on gas supply are a precautionary measure that increases the monitoring of supply, but no EU countries have yet signalled they are facing security of supply issues.
"In all cases, no security of supply issues have been signalled for the present point in time," the spokesperson said, adding the "early warning" alert is the lowest level of crisis notification in the EU rules on gas supply security.
Mr Putin said the switch to roubles would strengthen Russia's sovereignty. He said the West was using the financial system as a weapon, and it made no sense for Russia to trade in dollars and euros when assets in those currencies were being frozen.
"What is actually happening, what has already happened? We have supplied European consumers with our resources, in this case gas. They received it, paid us in euros, which they then froze themselves. In this regard, there is every reason to believe that we delivered part of the gas provided to Europe practically free of charge," he said.
"That, of course, cannot continue," Mr Putin said, although he said Russia still valued its business reputation and would continue to meet obligations in its gas and other contracts.
European gas prices have rocketed higher in recent months on mounting tension with Russia raising the risk of recession.
Soaring energy prices have forced companies, including makers of steel and chemicals, to curtail production.