The Turkish Prime Minister, Tayyip Erdogan, says Ankara has rescinded an agreement allowing French military planes to land, and warships to dock, in the country. This brings the conflict over a "genocide bill" proposed in France to the NATO level.

"We are re-evaluating our relations with France. We will take step-by-step measures, depending on how the situation unfolds", said PM Erdogan, accusing French President Nicolas Sarkozy's ruling party of "politics based on racism, discrimination, xenophobia."

Turkey has frozen all contacts with France, and canceled any joint political, economic and military projects with the EU country. This includes joint maneuvers and an economic committee meeting in Paris in January.

Access to Turkish airspace and military bases has been reduced to case-by-case scheme.

Erdogan has confirmed Ankara is withdrawing the country's Ambassador to France. The ambassador, Tahsin Burcuoglu, is to leave on Friday.

French Foreign Affairs Minister Alain Juppe has called Turkey not to "overreact" to the outcome of the vote, urging for "good sense and moderation," reports Reuters.

The sanctions follow a vote in France's lower house of Parliament in favor of a law that would deem denial of genocide a crime.

Though the proposed bill cites genocides in general, Ankara believes the law targets the 1915 ethnic cleansing of Armenians in the Ottoman Empire – which Ankara denies to qualify as genocide.

The bill, proposing a penalty of up to one year in jail and a fine of 45,000 euro ($58,870) to those who deny or "outrageously minimize" sufferings due to genocide, now awaits ratification in the French Senate. The law may just as well die there, as was the fate of an earlier draft this year.

Before the vote in the French Parliament, Turkey warned of “grave consequences” for France if the law is adopted. As both countries are members of NATO, the row could complicate relations within the bloc.

France and Turkey have  been cooperating on dealing with the Iranian nuclear stand-off, and crises in Syria and Afghanistan. Paris still considers Ankara a key partner in the NATO bloc, despite frictions between the two during the Libyan campaign, when Turkey contested France’s leadership over the operation.

France is Turkey's fifth biggest export market and the sixth biggest source of its imports, so the effects of a breakdown in relations could be major both for politicians and businessmen.

­'Turkey's business interests to prevail'

­The fresh conflict between Turkey and France is likely to abate after a few months, once Turkey’s economic interests take priority as they did in 2006, says political analyst Julia Kudryashova from the Moscow State Institute of International Relations (MGIMO). In 2006, France’s National Assembly passed a similar bill, though it was voted down by the Senate.

The analyst stresses that similar persecutory practices already exist in Belgium and Switzerland, but these do not prevent Turkey from maintaining relations with those countries.

“Turkey wishes to expand its influence in the Middle East, so it is interested in cooperating with NATO. Turkey’s positions on Libya and Syria have been in line with the alliance’s policy. So it makes no sense for Ankara to freeze its relations with the bloc,” Kudryashova told RT in a telephone interview.

Turkey had no choice but to react strongly to the bill, as it raises risks that the country will have to pay massive reparations to Armenians. In the US, several individual lawsuits against Turkey have been already ruled in the Armenians' favor, obliging Ankara to pay damages to the victims of the genocide, the analyst says.