The US is to expel 35 diplomats, and shut down two compounds
Vladimir Putin says he will consider retaliating after Washington hit Russia with sanctions over alleged hacking during the US presidential election.
The US is to expel 35 Russian diplomats, and shut down two Russian compounds, in response to "harassment" of American diplomats in Moscow and alleged interference in the recent election.
The diplomats being asked to leave work at the Russian embassy in Washington, and at the country's consulate in San Francisco.
Two Russian compounds in New York and Maryland, used for intelligence gathering, will be closed.
Two US officials said measures were being taken after Russia allegedly hacked US political institutions and individuals.
Moscow has denied hacking.
In addition, Vladimir Putin's country is accused of helping President-elect Donald Trump, and other Republican candidates, by leaking information.
Kremlin spokesman Dmitry Peskov said the US wanted to "definitively destroy US-Russia relations which have already reached a low".
According to the Ria-Novosti news agency, Mr Peskov said Russia would "react in an adequate manner based on the principles of reciprocity".
"We categorically reject the unfounded assertions and accusations made about Russia," he reportedly added.
The Russian embassy in the UK tweeted: "President Obama expels 35 (Russian) diplomats in Cold War deja vu. As everybody, incl (the American) people, will be glad to see the last of this hapless Adm."
There was also a picture of a duck, with "lame" written across it in large letters.
President Obama expels 35 ???? diplomats in Cold War deja vu. As everybody, incl ???? people, will be glad to see the last of this hapless Adm. pic.twitter.com/mleqA16H8D— Russian Embassy, UK (@RussianEmbassy) December 29, 2016
President Obama said in a statement: "These actions follow repeated private and public warnings that we have issued to the Russian government, and are a necessary and appropriate response to efforts to harm US interests in violation of established international norms of behaviour."
The outgoing president added: "All Americans should be alarmed by Russia's actions.
"Such activities have consequences."
Mr Obama also said the alleged hacking "could only have been directed by the highest levels of the Russian government".
Two Russian intelligence services, the GRU and the FSB, are to face sanctions.
The Russian diplomats being expelled will have three days to leave America, a senior US official said.
Access will be denied to the compounds from midday on Friday.
The move comes as Donald Trump, who has praised Vladimir Putin, prepares to take office next month.
Mr Trump issued a statement saying it was "time for our country to move on to bigger and better things".
However, he added: "In the interest of our country and its great people, I will meet with leaders of the intelligence community next week in order to be updated on the facts of this situation."
Mr Obama took action by amending an executive order issued last year.
Mr Trump will be able to reverse that order, should he wish.
Senator John McCain, meanwhile, has questioned whether Mr Trump's nominee to be Secretary of State - Rex Tillerson - is too closely linked to Russia.