The European Commission proposed a plan on Wednesday to compensate Ukraine for its damages caused by the conflict with proceeds from investing Russian funds frozen under sanctions.

European Commission President Ursula von der Leyen said in a statement that the frozen funds would go to Ukraine "to compensate for the damages caused to the country," already estimated at around 600 billion euros ($621 billion).

"We have blocked 300 billion euros of the Russian Central Bank reserves and we have frozen 19 billion euros of Russian oligarchs' money," she said.

Moscow says seizing its funds or those of its citizens amounts to theft.

European Commission officials said that one short-term option for Western nations would be to create a fund to manage and invest liquid assets - mainly cash - of the central bank, and use the proceeds to support Ukraine.

The assets would be returned to their owners when sanctions were lifted, which could be part of a peace agreement that ensured Ukraine received compensation for damages.

"It's not easy so it will require strong backing from the international community but we believe it is doable," one official said.

The legal distinction between confiscating assets outright and confiscating proceeds from those assets was unclear because there is no precedent for such a scheme.

However, the proposal does echo a plan Washington announced in September to transfer $3.5 billion in Afghan central bank assets into a Swiss-based trust fund that would be shielded from the Taliban and used to help stabilize Afghanistan's economy.

The Commission has proposed that violations of sanctions could be classified as an offense that would allow confiscation.

(With input from agencies)

(Cover: Flag of Europe Union on flagpole waving among the high buildings in the European capital city Brussels. /CFP )