Pressure, however, loomed from Syria's powerful neighbor Turkey, which has given refuge to a Syrian colonel who has joined the revolt, in a move that may heighten tensions between Damascus and Ankara.
"This veto will not stop us. No veto can give carte blanche to the Syrian authorities," French U.N. Ambassador Gerard Araud told the 15-nation council on Tuesday.
The United Nations resolution, which had hinted that Damascus could face sanctions at a later stage, received nine votes in favor and four abstentions. U.S. Ambassador to the United Nations Susan Rice said Washington was outraged and that it was time for the Security Council to adopt "tough targeted sanctions" on Damascus.
Assad had managed to maneuver Syria into being courted by the West while maintaining an alliance with Iran and backing militant groups, but the crackdown -- he has sent tanks and troops into towns and cities across the country to crush demonstrations -- have left him with few stalwart allies.
The Syrian economy is reeling from U.S. and European Union sanction on the small but key oil sector, which is linked to the Assad family and ruling elites.
Foreign currency reserves are under pressure, forcing the state last month to impose a sweeping ban on imports in a effort to maintain the reserves. But the ban was rescinded on Tuesday, after a spike in prices and disquiet among an influential merchant class that has been backing Assad.
Russia and China, which have major oil concessions in Syria and do not want to see Western influence in the Middle East spread, cast the only votes against the U.N. resolution.
Russian Ambassador Vitaly Churkin told the council that Moscow was firmly opposed to the threat of sanctions against Damascus, reiterating concerns that passing the European resolution on Syria could have opened the door to a Libya-style military intervention.
At least 2,700 civilians have been killed in Syria, by a United Nations count. Assad has said any other country would have responded to the uprising by using similar tactics.
The authorities blame "armed terrorist groups" backed by unspecified foreign powers for violence and say that 800 security-force members have been killed.
After months of peaceful protests, some army deserters and dissidents have taken up arms, prompting military operations against them, especially in areas bordering Turkey and Jordan.
Turkey's Anatolian news agency quoted Colonel Riad al-Asaad, the most senior Syrian officer to defect to the opposition since the popular revolt erupted in March, as saying he was safe in Turkey.
The agency's report was datelined Hatay in southern Turkey, where 7,000 Syrians have fled to escape Assad's crackdown on protesters.
Turkish Prime Minister Tayyip Erdogan, who has predicted the Syrian people will "sooner or later" overthrow Assad, his former friend, said he would unveil plans for sanctions against Syria after he visits Syrian refugees in Hatay in the next few days.
Turkey also announced a nine-day military exercise in Hatay, starting on Wednesday.
Syrian opposition groups meeting in Istanbul on Sunday appealed for international action to stop what they called indiscriminate killings of civilians by the Syrian authorities, but rejected any Libya-style military intervention.
The United States said it was encouraged by the opposition's statements supporting non-violence, and blamed the mounting death toll on the Syrian authorities.
Asaad, the military defector who leads the "Syrian Free Army," said last week that 10,000 troops had deserted.
Fighting erupted in the rugged Jabal al-Zawiya region of Idlib on Tuesday during army raids on the towns of Sarjeh and Shinan, where deserters were reported to have taken refuge, activists said, adding that at least two villagers were killed.
"These are rugged or agricultural regions. The regime cannot control them unless it commits more troops, and then it risks more defections," said one activist in the northwestern province of Idlib near Turkey.
The state's news agency said that "armed terrorist groups" killed a member of the security forces in an ambush in Idlib and lightly injured another in a bomb attack on a patrol in the city of Hama, which was overran by tanks in July to subdue large pro-democracy protests.
The authorities have denied any army defections, saying its military operations were a response to appeals by residents.
Assad retains control of the military, whose mostly Sunni Muslim rank and file are commanded by officers of his minority Alawite sect that also dominates the security apparatus.
Syria for the most part has closed its doors to independent media, making it hard to verify events, but a trickle of desertions appears to have gathered pace in the last several weeks.