By Matthew Dalton, Laurence Norman and Felicia Schwartz 

BRUSSELS--The European Union on Tuesday agreed to place sanctions on broad sectors of the Russian economy, EU diplomats said, marking a significant escalation of the bloc's response to allegations that Moscow is fueling violent conflict in eastern Ukraine.

The measures will target four economic sectors: finance, duel-use equipment that could have military applications, arms and oil-production equipment. They will sharply restrict the ability of Russia's state-owned banks, including Sberbank and VTB Group, from raising financing on European markets, officials said. The measures also will place an embargo on the arms trade and set restrictions on exports of militarily sensitive goods and technology used in unconventional oil drilling and exploration.

The sanctions are expected to be published Thursday. It isn't yet clear whether they will take effect immediately.

In Washington, U.S. Secretary of State John Kerry demanded that Russia encourage separatists to accept a cease-fire but signaled that it is already too late for Russia to avoid the new rounds of sanctions from the U.S. and Europe.

Mr. Kerry, speaking in a joint news conference with Ukrainian Foreign Minister Pavlo Klimkin, said Russia has left the world "with no choice" but to impose further sanctions.

The move is the most significant political step yet taken by the EU against Russia since Moscow's annexation of Crimea in March.

The EU has so far targeted dozens of Russian and pro-Russian separatists in Ukraine with an asset freeze and travel ban as well as hitting some Crimea-based companies. The bloc also has frozen fresh financing for some EU projects in Russia. On Monday, in a move aimed at hitting people and companies with close ties to the Kremlin, the EU also said it would target people who have been actively supporting the Russian government's actions in Ukraine.

Russia denies arming the rebels in eastern Ukraine.

Mr. Kerry said he spoke with Russian Foreign Minister Sergei Lavrov on Tuesday morning to demand that Russian President Vladimir Putin wield influence on Russian-backed separatists to lay down their arms to avoid deeper isolation. While Russia has said it hopes to help de-escalate the situation in Ukraine, Mr. Kerry said Russia's actions haven't shown "a shred of evidence" that Russia has a legitimate desire to do so.

Mr. Klimkin said reaching a cease-fire with the rebels would be "vital" and must be bilateral. Mr. Kerry repeated U.S. charges that evidence proves Russia has fired at Ukrainian armed forces, and Mr. Klimkin denied reports that Ukrainians had fired back at Russia.

With European countries enjoying broad energy, financial and commercial links with Russia, the EU had until the July 17 downing of Malaysia Airlines Flight 17 shied away from sector-wide sanctions on the Russian economy.

The plane crash brought an abrupt change in approach in many EU capitals. The U.S. and some European governments say they have evidence that the plane, which was brought down over eastern Ukraine, was shot down by the separatists. Most of the 298 people who died came from the 28-nation bloc.

Mr. Kerry also demanded Russia use its influence with Ukrainian rebels to cease fighting near the site where MH17 crashed and allow investigators to have "full, unfettered" access to the area.

Over the weekend, the EU's executive arm sent detailed legal proposals for broader sanctions to the member states.

Under those proposals, the sanctions wouldn't affect contracts already signed. That means, for example, that the French sale of the Mistral war ship can proceed.

On Tuesday, one senior official said there was "no substantial change" from the detailed measures sent to EU capitals.

A second official said there is now a specific exemption for future contracts needed to maintain EU countries' existing military capabilities. That would mean a member state can't buy a new tank, but it can buy a new engine for an existing tank.

Senior officials said the sanctions would last for 12 months, but EU governments would pledge to keep them under constant review. The measures could be scaled up or reversed if the bloc judges that Russia is changing its behavior over the Ukraine crisis.

There also may be a review of the sanctions after three months, officials said.

The EU also will publish a list of the entities affected by the broader sanctions.

The White House praised the EU move and said the U.S. is planning additional sanctions.

"We welcome these early indications that European countries are going to take additional steps today to impose additional costs on Russia," White House press secretary Josh Earnest said.

Mr. Earnest said the U.S. will follow suit, with plans to impose new sanctions on Russia "as soon as today."

Carol E. Lee contributed to this article.

Write to Matthew Dalton at Matthew.Dalton@wsj.com and Laurence Norman at laurence.norman@wsj.comand Felicia Schwartz at felicia.schwartz@wsj.com