Ukrainian President Volodymyr Zelenskiy had appealed to Nato to declare a no-fly zone over his country, which Russian forces invaded by land, sea and air on 24 February.
"We are not part of this conflict," Nato Secretary General Jens Stoltenberg said in denying Ukraine's request.
"We have a responsibility as Nato allies to prevent this war from escalating beyond Ukraine because that would be even more dangerous, more devastating and would cause even more human suffering," he said following a Nato meeting in Brussels.
Ukraine, an ex-Soviet republic, wants to join the European Union and Nato, moves that Moscow sees as threatening its security and influence. Russian forces have shelled residential areas and civilian infrastructure since unleashing their assault, as well as capturing two nuclear sites.
While the West condemned Putin, members of the 30-strong Nato, bound to defend each other in case of attack, are wary of getting into a war with nuclear-armed Russia. The EU threatened more sanctions but it was not clear what ammunition it had left.
US Secretary of State Antony Blinken said the alliance would defend "every inch" of Nato territory from attack. "Ours is a defensive alliance. We seek no conflict. But if conflict comes to us, we are ready," he said.
But the alliance - in which the US, Britain and France are also nuclear powers - dashed Ukraine's hopes of immediate help Kyiv says could turn the tables in the war.
"We should not have Nato planes operating over Ukrainian airspace or Nato troops operating in Ukrainian territory," Stoltenberg said.
More deaths, more sanctions
Support for Ukraine so far has come in the form of the heaviest international sanctions on Russia to date, as well as arms supplies from Nato states.
In a day of intense diplomacy - if no obvious immediate results - the G7 countries said they would hold to account those responsible for war crimes and would not recognise any Russian territorial gains.
EU countries said more financial punishment was coming, after the bloc already cut several Russian lenders from the SWIFT banking system, curbed trade with Moscow and targeted some of the wealth held by Russian oligarchs in the West.
EU was looking at curbing Russia's access to the International Monetary Fund, officials said.
"It's Putin's war, and only Putin can end it," top EU diplomat Josep Borrell, said. "If someone expects that sanctions can stop the war tomorrow, they don't know what they're talking about."
Ukraine called on the West to freeze out all Russian banks. But it was not clear when and what more sanctions the EU could agree, given its reliance on Russian energy supplies, which think-tank Eurointelligence said amount to $700 million daily.
Ireland said a fourth round could affect more Russian banks, bar Russian ships from European ports and cut imports like steel, timber, aluminium or coal.
Ukrainian foreign minister Dmytro Kuleba urged Nato on Friday: "Act now before it's too late," Kuleba said.
But Stoltenberg said the worst was yet to come as Russia was rolling out more heavy arms.
"The days to come are likely to be worse, with more deaths, more suffering and more destruction," he said.