"We have always supported" the KRG, Erdogan told reporters in New York after his address at the UN General Assembly. "We think this approach of theirs amounts to ignoring the Republic of Turkey, which has stood by them and counted them as a close ally."
The cabinet and the National Security Council will convene to make a final decision, Erdogan said, Anadolu Agency reported.
"The cabinet will undoubtedly evaluate this situation and assess possible sanctions, which will not be ordinary," he said.
"We will express our determined stance on this."
Residents in provinces controlled by the KRG will vote Sept. 25 on independence from Baghdad.
The oil-rich province of Kirkuk is among the contested areas where the vote is planned.
Last week, Iraqi lawmakers voted against the independence referendum and called on the Baghdad government to negotiate with the KRG.
The Iraqi government is opposed to the poll, claiming it will affect the war against Daesh (also known as ISIL or ISIS), cause instability and violate the Iraqi Constitution.
Turkey, the US, Iran and the UN have all backed Baghdad in speaking out against the referendum.