"Individuals permanently residing in certain areas of Ukraine's Donetsk and Lugansk regions have the right to apply for Russian citizenship under a simplified procedure," a decree reads, according to Russia's state-run Tass news agency.
Ukraine's outgoing president, Petro Poroshenko, called the move "unprecedented interference... in the internal affairs of an independent state."
He said it was a "brutal violation of sovereignty, territorial integrity and independence of Ukraine and a complete trampling upon its obligations in the framework of the Minsk agreements."
In addition to supporting separatists in eastern Ukraine, Russia annexed the Black Sea peninsula of Crimea in 2014.
Efforts to broker a lasting peace in Ukraine have faltered. The Minsk agreements signed in 2014 and 2015 called for a ceasefire and withdrawal of heavy weapons, but have repeatedly been breached.
The proxy war has claimed around 13,000 lives in the country's east, where the majority of the country's ethnic minority Russian population lives.
US condemnation
The US State Department in a statement on Wednesday condemned Putin's decision to fast-track Russian citizenship applications.
"Russia, through this highly provocative action, is intensifying its assault on Ukraine's sovereignty and territorial integrity," it said.
Kurt Volker, the Special Representative for Ukraine Negotiations, was also critical.
"Russia's recent decision to issue passports is highly provocative and is straight from its 'occupation playbook' and undermines efforts to implement Minsk and restore Donbas to Ukrainian control," he tweeted.
Putin signed his order just three days after Ukraine's presidential election, in which Volodymyr Zelensky, a former comedian, was elected in a landslide.
"There are chances to improve Ukraine's interaction with our country," Russian Prime Minister Dmitry Medvedev said on Facebook in response to the election result. "What is needed for this? Honesty. And we need a pragmatic and responsible approach."
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