The "moratorium" on outstanding debt repayments to Russia effectively means that Ukraine is defaulting on the $3 billion debt due Sunday.

It`s the latest spat between the two neighbors following a run of gas supply disputes, Russia`s annexation of the Crimean peninsula and support for separates in eastern Ukraine.

"After Russia refused to accept our offer despite our attempts to reach a restructuring deal, the government is imposing a moratorium on the repayment of the $3 billion debt to Russia," Yatsenyuk said at a televised government session.

He did not indicate when Ukraine would be ready to repay the debt. Moscow has previously said it will take Ukraine to court if it fails to pay on time.

Ukraine`s economy has struggled over the past few years and the country has negotiated repayment terms with creditors, but not with Russia.

In November, Russian President Vladimir Putin proposed a debt restructuring, saying Moscow would be willing to agree to payments of $1 billion a year between 2016 and 2018.

Ukraine turned down the offer, saying it cannot legally offer Russia a better deal than the one it has negotiated with other debt holders. That deal has seen countries accept a 20 percent write-down of their Ukrainian bond holdings, a move which has cut Ukraine`s sovereign debt from $19 billion to $15.5 billion.

Relations between the two neighbors soured after Russia annexed the Crimean peninsula in March 2014 and threw its backing behind separatist rebels in eastern Ukraine. Ukrainian leaders have accused Moscow of sending troops and weapons to the east, a claim the Kremlin has vehemently denied.

Kiev has sought to give a political dimension to the debt, hinting that Russia bought Ukrainian bonds in December 2013 in an act of clandestine bribery of then President Viktor Yanukovych who was facing massive anti-government protests at the time.

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