Nicosia has toed the EU line on mild sanctions against Russia over the crisis in Ukraine but warned that it will oppose 'punitive' economic measures.
Foreign Minister Ioannis Kasoulides on Tuesday said: "Cyprus is against measures that will be punitive for us and our economies."
He added: "In the event of any possible measures that will hit the economics of member states such as Cyprus, President Nicos Anastasiades will ask for counter-measures before Cyprus endorses them."
On Monday, foreign ministers of the European Union (photo) issued the first sanctions against a handful of Russian officials.
These officials are considered to be responsible for actions that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.
They also condemned the referendum in Crimea as a clear breach on the Ukrainian Constitution and therefore illegal.
They offered political and financial assistance to Ukraine, and called for dialogue between Ukraine and Russia.
However, EU ministers did not go as far as to impose visa restrictions on Russia - a measure proposed by some members.
Cyprus - a favourite holiday destination for Russians - could lose millions in revenue from possible visa restrictions.
Kasoulides said that Cyprus is in favour of the sovereignty of Ukraine, and reiterated the need for a political solution to be reached.
"A realistic approach should be implemented," he said in an intervention before the EU Foreign Affairs Council meeting in Brussels.
"Diplomatic efforts must focus on averting escalation of the crisis in the regions of Western and Southern Ukraine."
Kasoulides said Kiev should also take a number of measures.
"The Ukrainian government must adopt a series of good will measures towards the Russian speaking population of the country, including respect of linguistic rights."
"(It should also) firmly address extremist and Nazi groups and their uncontrolled behaviour," he added.
In parallel with financial support from the EU, Kiev should also undergo extended reforms in a bid to confront corruption, he also said.
"This is vital in order to secure the support of the Ukrainian people in the country's efforts to achieve fiscal consolidation."
Former foreign minister George Lillikas said in a statement that no parallels should be drawn between Cyprus' occupied north and Crimea.
"The two cases are completely different. The basic and undisputable difference is that Russians always lived in Crimea. But in the occupied north of Cyprus, Greek Cypriot inhabitants were the vast majority forcibly and violently uprooted by Turkish soldiers," he said.
"And Turkish Cypriots and Turkish settlers now live illegally in the ancestral homes of Greek Cypriots."