Intelligence officials believe Russian Federation was behind the attack.
About 10 Russian diplomats are expected to be expelled according to another senior administration official.
Russian bonds fell and the ruble dropped the most since December on news of the impending penalties, although the ruble and Russian bonds recovered some of their losses after the sanctions were announced. "His goal is to provide a significant and credible response but not to escalate the situation".
The latest moves come just two days after President Joe Biden warned Vladimir Putin the US would defend its interests but also offered the possibility of a summit meeting in the coming months, drawing a cautiously positive response from Moscow.
Vladimir Putin has been accused of sponsoring cyber attacks against the West Credit GETTY IMAGES
He said that during a phone call earlier this week he was "clear with President Putin that we could have gone further" but added that Washington is "not looking to kick off a cycle of escalation and conflict with Russian Federation".
Russian President Vladimir Putin at a 2015 press conference in NY. Prigozhin has been under US sanctions since late 2016.
Restrictions, like those announced Thursday, blocking US investors from buying ruble-denominated Russian government debt have always been seen as the "nuclear option" in financial markets, where the bonds, known as OFZs, have been a popular investment.
He also detailed his phone call with Putin earlier this week, as well as his administration's approach to bilateral relations.
Among his moves, Biden signed an executive order authorizing the USA government to impose sanctions on any area of the Russian economy and used it to restrict Russia's ability to issue sovereign debt to punish Moscow for interfering in the 2020 United States election. The sanctions aren't specifically tied to that intelligence.More news: Ontario schools to switch to remote learning after spring break
Maria Zakharova, the Russian foreign ministry spokesman, said: "Washington should realise that it will have to pay a price. A response to sanctions is inevitable".
A senior Russian official, speaking on condition of anonymity to discuss matters that aren't public, called the new debt restrictions the least painful option since they don't affect the secondary market.
SVR head Sergei Naryshkin said Friday the USA sanctions eroded global security, as he played up Russia's view of its role in global stability as what he called one of the world's two "great powers".
"The sanctions were moderate and I hope the reaction will be", said Andrey Kortunov, head of the Kremlin-founded Russian International Affairs Council.
Russian Federation swiftly denounced the actions and warned of retaliation.More news: North Atlantic Treaty Organisation ministers to hold talks as U.S. announces Afghan withdrawal
The announcement follows an expansive review of Russia's activities, ranging from its interference in the 2020 US presidential election to placing bounties on USA soldiers in Afghanistan, and includes a specific, tailored set of measures, leaving options for future action depending on how Moscow responds.
A USA intelligence community assessment has concluded with a high degree of confidence that Putin and the Russian government authorized and directed an effort to influence the 2020 election.
He said the competition between the world's leading intelligence services "should be fair". Others targeted include individuals and entities that operate outside Russian Federation at the behest of Moscow.
The actions, foreshadowed by the administration for weeks, signal a harder line against Putin, whom Trump was reluctant to criticize even as his administration pursued sanctions against Moscow. In 2019, Russian Federation reportedly offered money to the Taliban in exchange for killing American troops in the country.
In a report last month, USA intelligence agencies concluded the Russian president likely directed online efforts to help President Donald Trump win a second term.More news: COVID cases surge in Ontario as province logs record high of 4,456
It also said the attack on SolarWinds highlighted the risks posed by Russian attempts to target victims via their supply chains and served as a warning of the risks of using ICT and services supplied by companies that operate or store user data in Russia, or rely on software development or technical support there. In that intrusion Russian hackers are believed to have infected widely used software with malicious code enabling them to access the networks of at least nine agencies in what U.S. officials believe was an intelligence gathering operation aimed at Mining Government secrets.