In a scathing attack on the US president, Russia‘s Mr Putin warned the measure could push Kim Jong-un into sparking World War 3.
He claimed the next step after sanctions would be an “invitation to the cemetery” because Kim will never give up his nuclear weapons.
He said: “We hope it will not come to a conflict with the use of weapons of mass destruction in North-East Asia.
“There are possibilities to achieve the settlement of Pyongyang’s problem by diplomatic means. This is possible and must be done.
“We are telling them that we will not impose sanctions, which means you will live better, you will have more good and tasty food on the table, you will dress better.
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“But the next step, they think, is an invitation to the cemetery. And they will never agree with this.”
Mr Putin urged Mr Trump not to whip up military “hysteria” around the North Korean crisis, saying it would be “counter-productive”.
He told the Eastern Economic Forum (EEF) in the far eastern Russian city of Vladivostok: “It’s impossible to scare them.”
North Korea sees its nuclear programme as the only way to protect its security despite the economic impact of sanctions, he added.
The Russian president said: “They view the possession of atomic weapons and missile technology as their only means of protection. Do you think they’ll give it up now?”
Kremlin chief Mr Putin added: “The build-up of some military atmosphere, of hysteria, is counter-productive, in my opinion.
“It will lead to nothing, because what is happening now, of course, is a provocation from North Korea. This is quite obvious.
“They are provoking the situation, but if they are doing it, they are not stupid people, believe me.
“So they expect the corresponding reaction from their partners, and they achieve it.”
Russian Deputy Foreign Minister also attacked Mr Trump’s call for sanctions on Kim’s brutal regime at the economic summit.
Igor Morgulov said: “Now the United States is calling for even more severe new sanctions, but this is an infinite path.
“We will be walking in this vicious circle of sanctions, which will be followed by new tough answers from North Korea, and the situation will only get worse.
“We must understand that the sanctions mechanism has now practically exhausted itself.
However, Japan‘s Prime Minister Shinzo Abe called on world powers to press Pyongyang to abide by its UN obligations.
He told the same conference: “North Korea must fulfil all UN resolutions, abandon its nuclear and missile programmes.”
“The international community must unite to force North Korea to fulfil its UN obligations.”