Failing to engage with Russia is not an option and the Government must start to hold regular top level talks with the Kremlin, an influential committee has said.
The Foreign Office (FCO) does not appear to know what it wants from relations with Moscow and must plough extra resources into dealing with the federation, according to MPs.
Boris Johnson is playing into Vladimir Putin's hands by accusing the Russian of war crimes in Syria without producing proof, the Foreign Affairs committee warned.
The Foreign Secretary risked bolstering Kremlin claims that it was being held to hypocritical standards by the West if he continued to repeat the allegations, it said.
Britain was "not Russia's enemy" and the Government must engage with "frankness and honesty" while sticking to its values, the committee said.
Chairman Crispin Blunt said: "Given Russia's size and history, the relationship between our two countries matters. But it is fraught.
"Refusal to engage with Russia is not a viable, long-term policy option."
Relations with Moscow are at their most strained since the end of the Cold War following a series of crises since the murder of British citizen Alexander Litvinenko by polonium poisoning.
The war with Georgia, annexation of Crimea, controversial intervention in Syria civil war, cyber attacks and attempts to subvert Western elections fuelled tensions.
Policy makers had failed to take account of Moscow's view of its place in the world following the collapse of the Soviet Union, the report found.
Moscow was "prepared to be disruptive in foreign affairs and reject international rules" but it was "worth exploring" the shared interests, such as defeating Islamic State.
International sanctions may prove difficult to maintain in the face of Brexit and Donald Trump's Russia-friendly US administration, the report warned.
It called for the Government to set out how the UK would impose restrictions once it had severed ties with Brussels, which is currently responsible for carrying them out on behalf of EU nations.
The Government should introduce powers to seize the assets of Russians living in Britain who were associated with Putin who were responsible for human rights abuses, MPs said.
They also raised concerns about the rise of fake news and called on regulators to continue to take actions against Russian broadcasters in the UK for false reports.
Mr Blunt said: "Russia exploits opportunities where it perceives the West has not lived up to its own ideals or standards.
"The UK must continue to challenge Russia on actions that violate international humanitarian law in Syria or elsewhere, not least its illegal annexation of Crimea.
"The UK is not Russia's enemy.
"In the long-term, Russia's focus on its western borders may be misplaced.
"In reality, the China-Russia relationship may be the critical international relationship to watch in the next 50 years.
"The FCO's Russia expertise has disintegrated since the end of the Cold War. This must be reversed.
"The committee recommends increased FCO resources to enhance the UK's analytical and policy making capacity, and the appointment of an FCO minister with more specific responsibility for Russia.
"We encourage the FCO to develop a long-term, people-to-people strategy to build bridges with the next generation of Russian political and economic leaders."
The Foreign Office said that while the UK had "significant differences" with Russia, not least over Ukraine and Syria, they did engage with Moscow when it was in British interests to do so.
"Our objectives are clear. We protect UK and our allies' interests, uphold the rules-based international order and global security, promote our values, including human rights, and build stronger links between the British and Russian people," a spokeswoman said.
"We have increased resources on Russia across government, both in London and overseas, to deliver this policy."