The Trump administration has approved sanctions against Turkey as retaliation for buying a Russian missile system, the first time such measures have been used against a NATO ally.
An export ban and US visa restrictions will be imposed on the Turkish government agency that oversees defence purchases.
The decision came as European leaders delayed a decision on sanctions over a separate dispute — oil drilling rights in the eastern Mediterranean — until March.
The US says Turkey decided to purchase the S-400 air defence system from Russia even though it is incompatible with NATO equipment.
Secretary of State Mike Pompeo added that his country had "made clear to Turkey at the highest levels and on numerous occasions that its purchase of the S-400 system would endanger the security of U.S. military technology and personnel."
A statement on Monday added: "today’s actions are not intended to undermine the military capabilities or combat readiness of Turkey or any other U.S. ally or partner, but rather to impose costs on Russia in response to its wide range of malign activities."
But Turkey called the decision "completely senseless" and said claims the system was incompatible with NATO equipment were "devoid of any technical merit".
The US had previously removed Turkey from its F-35 stealth fighter development programme last year over the S-400 dispute.
But many analysts believe President Donald Trump's close personal relationship with his Turkish counterpart Recep Tayyip Erdoğan influenced the decision to hold off from sanctions until now.
Turkey tested the missile defence system in October for the first time, drawing a condemnation from the Pentagon.