President Hugo Chávez has recalled Venezuela's ambassador from Colombia and frozen diplomatic relations in a row over weapons supplied to Colombian guerrillas.
The leftist leader also threatened to seize Colombian-owned businesses in Venezuela and to cut trade worth $6bn (£4bn) between the Andean neighbours.
Chávez said the moves were to punish the Bogotá government for claiming that Venezuela had armed leftist Farc rebels, a movement which Colombia, the US and the European Union list as a terrorist organisation and drug trafficker.
"We are not going to accept this irresponsibility," he told a televised cabinet meeting on Tuesday night. "We will freeze relations with Colombia."
The announcement came a day after Colombia said the Farc had obtained AT-4 anti-tank rocket launchers bought by Venezuela from Sweden's Saab Bofors Dynamics.
Colombia said it had recently confirmed with Sweden the serial numbers of launchers seized from a rebel arms cache. Swedish officials said the discovery indicated a violation of end-user licenses and asked Venezuela for an explanation.
Chávez, a former tank commander-turned-socialist revolutionary, said the accusation was a "big manipulation" and that it was unfair to single out Venezuela, which shares a 1,400-mile border with Colombia, since the guerrillas obtain weapons from many sources, including Israel, Russia and the US.
During his decade in power Venezuela's president has expressed admiration for the Farc, who share his leftist ideology, but since the group suffered serious military setbacks last year he has distanced himself and urged it to lay down its arms.
The insurgents' despondency was visible in an address by a senior Farc commander, Jorge Briceño, in a recently leaked videotape. He admitted the four-decade-old campaign was in trouble and lamented the loss of laptops captured last year by Colombia's military. "The secrets of the Farc have been lost completely."
Despite his recent disavowal of the rebels, Chávez's relations with Colombia's president, Alvaro Uribe, a conservative, pro-Washington hardliner, have remained rocky, with both men regularly exchanging insults.
Colombia's decision to bolster US military bases, which help counter rebels and drug trafficking, prompted a furious response from Caracas, which said it was being encircled and set up for attack just like Iraq.
A US congressional report last week accused corrupt Venezuelan officials of opening their borders to Colombian drug traffickers.
Chávez rejected the allegation as a smear and a veiled threat and said Venezuela would double its number of tanks to deter invasion.
Bogotá's subsequent accusation over the rocket launchers prompted last night's televised announcement. "The Colombian government is showing it doesn't care at all about its relations with Venezuela," said Chávez.
In addition to withdrawing Venezuelan diplomats he threatened to seize Colombian businesses and eliminate imports of Colombian goods. "We can get them from any other country."
The socialist leader also warned he may shut down a 139-mile pipeline which carries up to 300 metre cubic feet of natural gas daily from Colombia to Venezuelan oil installations.
Colombia's government did not immediately respond to the announcements.
Business leaders on both sides of the border appealed for calm. "The authorities need to meet and talk. The worst affected would be ordinary people," Daniel Montealegre, head of the business association Cavecol, told Venezuela's Union Radio.
During previous diplomatic rows Chávez has threatened to cut economic links but, minded of the neighbours' mutual dependence, not followed through.
The televised cabinet meeting doubled up as a 55th birthday party for the president. After the warnings to Colombia there was a cake, songs and gifts, including a sword from Russia's government.