The European Central Bank threatened Thursday to pull the plug on its emergency funding to Cyprus unless Nicosia can secure a bailout deal with international creditors by next week.
"The governing council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25," the ECB said in a short statement.
Thereafter, assistance "could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks," it said.
The survival of a number of Cypriot banks is widely understood to be dependent on the ELA programme, where funds are provided by the Central Bank of Cyprus with the ECB's approval.
Marie Diron, economist at Ernst & Young Eurozone Forecast, said the ECB was effectively issuing an ultimatum to Cyprus.
"It wants to demonstrate the urgency of the situation in Cyprus, to Brussels as well as to Moscow," she said.
But speaking to a hearing of the European Parliament's economics committee in Brussels, Eurogroup head Jeroen Dijsselbloem insisted the ECB was not issuing any threats.
"I don't think ECB is using threats. They're doing as much as they can within their mandate," Dijssselbloem said in response to MEPs' questions.
"All they have said, if I understand correctly, is they think it is very, very urgent that there is a programme. I think the ECB has a valid point there," he said.
Already on Wednesday, ECB executive board member Joerg Asmussen had hinted that Cyprus's banks could not count on the ELA emergency funding if Nicosia did not agree to a bailout deal, complete with a restructuring of its banking system.
The ECB can only provide funds to banks that are solvent, and their solvency would not be assured "if an assistance programme for Cyprus that guarantees a rapid recapitalisation of the banking sector is not agreed upon soon," Asmussen said.
Cyprus has turned to Russia for help because Russians including wealthy tycoons hold between a third and half of all Cypriot deposits and are believed to have more than $30 billion in private and corporate cash in the island's banks.
Russian Prime Minister Dmitry Medvedev has slammed current European proposals to solve the Cyprus crisis as "absurd".
Cypriot leaders are to decide Thursday on a newly drawn-up plan aimed at securing a bailout for the near-bankrupt eurozone member, after parliament rejected a controversial tax on savings.
President Nicos Anastasiades is to present a "Plan B package" to party leaders at the presidential palace, after he chaired an emergency cabinet meeting called to weigh the alternative plan on Wednesday.
The proposals, which might still include a controversial bank levy in some form, were put forward at the cabinet meeting called to end a crisis that has forced the authorities to shut the Mediterranean island's banks for 10 straight days.
Cyprus is seeking ways to secure funding for its banks after lawmakers on Tuesday flatly rejected a highly unpopular measure that would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for an EU-led 10-billion-euro ($13-billion) loan.
The 5.8 billion euros the proposal would have raised was crucial to Nicosia getting the full rescue. With that now in doubt, Cyprus must find other ways to raise cash to repay its debts.