David Cameron is under pressure to escalate reprisals against Russia after a public inquiry implicated Vladimir Putin in the assassination of Alexander Litvinenko.
The report by Sir Robert Owen found the president "probably" signed off the poisoning of the dissident with radioactive polonium in London in 2006.
Moscow branded the process "politically motivated" and "absurd", while the Government responded by summoning the Russian ambassador and announcing that the two men who allegedly carried out the killing - Andrei Lugovoi and Dmitri Kovtun - would have their assets frozen.
However, the barrister for the Litvinenko family warned it would be "craven" if the Prime Minister avoided substantial reprisals for "nuclear terrorism" due to diplomatic considerations over crises in Syria and Ukraine.
The previous row over the assassination sent relations between the countries into the deep freeze for more than five years.
In a 300-page report, Sir Robert said Lugovoi and Kovtun were probably acting under the direction of Moscow's FSB intelligence service when they laced 43-year-old Mr Litvinenko's tea with polonium at the Millennium Hotel in London's Mayfair.
Singling out then-FSB chief Nikolai Patrushev alongside Mr Putin, the former judge wrote: "Taking full account of all the evidence and analysis available to me, I find that the FSB operation to kill Litvinenko was probably approved by Mr Patrushev and also by President Putin."
Sir Robert pointed to Mr Litvinenko's work for British intelligence, criticism of the FSB and Mr Putin, and his association with other dissidents such as Boris Berezovsky as likely motives for the assassination.
There was also "undoubtedly a personal dimension to the antagonism" between Mr Putin and Mr Litvinenko.
Tensions dated back to their only face-to-face meeting in 1998, when Mr Putin was head of the FSB and Mr Litvinenko wanted him to bring in reforms.
The dissident made "repeated highly personal attacks" on the Russian leader after seeking asylum in the UK in 2000, including an allegation of paedophilia in July 2006.
Sir Robert wrote: "I am satisfied that, in general terms, members of the Putin administration, including the president himself and the FSB, had motives for taking action against Litvinenko, including killing him, in late 2006."
Other cases suggested that "in the years prior to Litvinenko's death, the Russian state may have been involved in the assassination of Mr Putin's critics", although this evidence was "circumstantial".
Sir Robert said he was "sure" Mr Litvinenko's murder had been carried out by Lugovoi and Kovtun, who are both wanted by UK authorities but who Russia has refused to extradite.
The use of polonium 210 was "at the very least a strong indicator of state involvement", as it had to be made in a nuclear reactor.
The inquiry heard evidence that Mr Litvinenko may have been consigned to a slow death from radiation rather than shot in order to "send a message".
Lugovoi has been "lionised' in Russia since the killing, becoming a member of the Duma, the Russian Parliament, and receiving an award from Mr Putin.
Sir Robert suggested that showed Moscow was signalling approval of the murder, although he stressed that by itself did not necessarily mean the state was involved.
Mr Litvinenko's widow, Marina, said outside the High Court that she was "very pleased that the words my husband spoke on his deathbed when he accused Mr Putin have been proved by an English court."
Her barrister, Ben Emmerson QC, told a press conference that the killing had amounted to "nuclear terrorism", and said the family had sent ministers a list of potential targets for sanctions.
Insisting there were "always" wider political concerns that made reprisals difficult, he added: "It would be craven for the Government, for the Prime Minister, to do nothing in response."
In a statement to MPs, Home Secretary Theresa May said Mr Cameron would raise the issue with Mr Putin at the "first available opportunity".
"This was a blatant and unacceptable breach of the most fundamental tenets of international law and civilised behaviour. But we have to accept that this doesn't come as a surprise," she said.
Scotland Yard's investigation remains open and European arrest warrants remain in place for the two men, the Home Secretary added.
The report found that Lugovoi and Kovtun also tried to poison Mr Litvinenko at a meeting in London on October 16 - a fortnight before he ingested the fatal dose.
It said the pair then placed the substance in a teapot in the Pine Bar at the Millennium Hotel on November 1 2006. They left a radioactive trail in a number of locations around the capital, including a hotel sink where they deposited leftover polonium.
The year-long inquiry heard evidence from a variety of experts, but neither of the alleged killers appeared in person.
Much of the material from the UK security services has been censored from the public version, although it informed Sir Robert's findings.
The Government had initially argued that a public inquiry was not necessary and the matter should be dealt with by an inquest. However, Mrs Litvinenko won a court battle to have the decision overturned.
Speaking to the Interfax news agency, Lugovoi said: "As we expected, there was no sensation. The results of the investigation that were announced today once again confirm London's anti-Russian position and the blinkered view and unwillingness of the British to establish the true cause of Litvinenko's death."
Russia's Foreign Ministry said the inquiry was not impartial and claimed the conclusions had been pre-determined.
Spokeswoman Maria Zhakarova said: "We regret that a purely criminal case has been politicised and has darkened the general atmosphere of bilateral relations."
She added that "clearly the decision to suspend the coroner's inquest and begin 'public hearings' was politically motivated".
Shadow home secretary Andy Burnham said the Government's diplomatic response did not "go anywhere near enough in answering the seriousness of the findings" and "could send a dangerous signal to Russia that our response is too weak".
He suggested the immediate expulsion of every FSB operative in the UK and strengthened economic sanctions.