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Mr Key said Trade Minister Tim Groser had been in Moscow holding trade talks over the weekend, but the Government had decided he should leave today rather than hold any further talks.
The trade talks have been underway for the past three years, and an agreement was expected to be signed very soon.
Mr Key said New Zealand condemned Russia's actions in Ukraine, and the next few weeks would determine whether the timeline for the agreement would be affected.
"I don't think this is the right time to be signing an FTA."
Mr Key said he hoped it would not completely kill off the trade deal.
"But that will depend on the outcomes of the next three weeks."
Foreign Affairs Minister Murray McCully said the Russian Ambassador had been called in to the Ministry of Foreign Affairs and Trade this afternoon over the escalation of tensions in Ukraine.
"On my instructions the Russian Ambassador has been called in to the Ministry to hear directly New Zealand's views on the situation", he said.
"New Zealand is deeply alarmed at the escalation of tensions in Ukraine over recent days and we condemn the breach of Ukraine's sovereignty and territorial integrity.
"We understand Russia has significant interests especially in the Crimean Peninsula, however they need to pursue these interests in a manner that is consistent with Russia's treaty obligations, international law and accepted international norms.
"New Zealand calls on the Russian Government to take steps to reduce tensions and to engage in consultations with other affected parties to achieve this objective," McCully said said.
- Adam Bennett and Claire Trevett of the NZ Herald