By Adrian Croft and Justyna Pawlak
BRUSSELS (Reuters) - The European Union was set to take a cautious step towards extending sanctions against Russia on Monday, targeting companies, as well as people, linked to Moscow's annexation of Ukraine's Crimea region.
Ministers meeting in Brussels also discussed what would trigger more hard-hitting economic sanctions on the Russian economy with big EU powers Germany, France and Britain all threatening tougher action against Moscow if it undermined the May 25 Ukrainian presidential election.
Several ministers denounced as illegal Sunday's referendums organised by pro-Russian rebels in eastern Ukraine that separatist leaders may use to formalise a split with Kiev.
"These attempts at referendums have zero credibility in the eyes of the world, they are illegal by anybody's standards," British Foreign Secretary William Hague told reporters as he arrived at the meeting.
Dutch Foreign Minister Frans Timmermans said he believed EU foreign ministers would expand sanctions against Russia.
"We need to send a clear message that what we have seen until now is completely unacceptable," he told reporters.
The EU ministers were set to endorse a broadening of the legal criteria for sanctions on Russia, making it easier to freeze the assets of companies involved in the Ukraine crisis.
For now, the scope of new sanctions will be limited to firms or other organisations linked to Russia's annexation of Crimea and the EU will not target high-profile firms such as Gazprom.
Using the new expanded criteria, EU officials have prepared a list of 13 people and two Crimean companies active in the energy sector that ministers are expected to add to the EU sanctions list on Monday, EU diplomats say. The identities of the people and firms are being kept confidential for now.
The EU has previously imposed asset freezes and visa bans on 48 Russians and Ukrainians over Moscow's annexation of Crimea but even with the addition of a few companies, its sanctions will still be less ambitious than those imposed by Washington.
Ministers were holding talks with Didier Burkhalter, head of the Organisation for Security and Cooperation in Europe, who has drawn up a peace plan for Ukraine.
Ministers are also expected to debate the sensitive issue of what would trigger more far-reaching economic sanctions that EU leaders have threatened to impose on Russia if it further destabilises Ukraine.
The EU, dependent on Russia for energy, is deeply divided with countries such as Britain, France, Poland and Sweden pushing for stronger sanctions. Those most reluctant include Italy, Greece, Cyprus, Bulgaria, Luxembourg, Austria and Spain.
Germany and France are ready to agree more extensive sanctions against Russia if a planned presidential election in Ukraine on May 25 is foiled, Chancellor Angela Merkel and President Francois Hollande said on Saturday.
Britain also backs that position.
Hague said he hoped the EU would intensify preparations for economic sanctions "if the circumstances require it, particularly determined by the Russian attitude to the elections on May 25."
He thought ministers would be able to agree on Monday what the tests for moving to tougher sanctions were.
Poland's foreign minister Radoslaw Sikorski also said the threat of further sanctions would be spelled out on Monday.
"I expect we will decide today to expand the sanctions list and set out new sanctions in the case that the May 25 election is disturbed," he said.German Foreign Minister Frank-Walter Steinmeier said he would travel to Kiev on Tuesday and possibly to eastern and southern Ukraine to try to convince people there that building bridges between different sides was the only solution.
"We have to be prepared for what to do if someone prevents the elections on May 25. It that is going to happen ... then we have to think about further sanctions," he said.
But Austrian Foreign Minister Sebastian Kurz opposed tougher sanctions.
"We should not yearn for economic sanctions as they would not only hit Russia but also definitely hit us .. If we would go one step further with our sanctions with every provocation, we would already have war," he said.
Some EU governments fear tough trade sanctions on Russia could undermine their own economies, just recovering from the financial crisis, and provoke Russian retaliation.
(Editing by Giles Elgood)