Faure Gnassingbe was named president by Togo's powerful army after his father and Africa's longest-serving leader, Gnassingbe Eyadema, died two weeks ago. The constitution was then hastily amended to legitimise the move.
African and world leaders called the move a coup and demanded that Togo revert to its original constitution, which said the head of the national assembly should take over pending elections in 60 days.
Bowing to the fierce international pressure, Gnassingbe promised on Friday to hold elections in two months, but indicated he would not step down before the vote.
African leaders said the pledge was not enough.
The Economic Community of West African States (ECOWAS) said in a statement that it was suspending Togo from participating in the bloc's activities, imposing a travel ban on its leaders, recalling its ambassadors and decreeing an arms embargo.
Faure Gnassingbe said elections
would be held within 60 days
The statement said ECOWAS considered Gnassingbe's declaration "to have fallen far short of the expectations and demands of ECOWAS leaders".
US State Department spokesman Richard Boucher said Washington backed the ECOWAS decision.
"The United States has ended all military assistance to Togo. We are reviewing all aspects of our relations with Togo in order to identify further means of supporting the actions of ECOWAS," he said.
The US said it would not recognise the new president.
In Togo's capital Lome, at least 10,000 people marched through the opposition stronghold of Be on Saturday, waving branches and placards and demanding Gnassingbe step down in the largest protest since the 39-year-old took over.
Togolese authorities were defiant on Saturday, with Foreign Affairs Minister Kokou Tozoun saying if Gnassingbe resigned it would leave a dangerous vacuum.
"Can we be without a president for 60 days?" he said. "We prefer to have sanctions and be in peace and security rather than descending towards civil war," he said.
"We have no weapons. We only have popular mobilisation. We rely on it to push back the regime and make it leave"
leader of the main UFC opposition party
African leaders want to avoid further instability in a region already torn by conflict, most recently in Ivory Coast. Analysts have said any solution to the crisis must have the blessing of the army to avoid an even more dangerous standoff.
African Union (AU) Commission Chairman Alpha Oumar Konare urged Togo to take the measures expected by the AU, ECOWAS and the international community. "Any other step would only complicate the situation in Togo," he said in a statement.
Opposition leaders in Togo said Gnassingbe's pledge of polls was just a continuation of what they called a coup. Saturday's protest broke up peacefully, but four demonstrators were killed in clashes in the same neighbourhood one week ago.
AU leaders want to avoid further
instability in the area
"We have no weapons. We only have popular mobilisation. We rely on it to push back the regime and make it leave," said Jean-Pierre Fabre, a leader of the main UFC opposition party.
Demonstrators chanted "Eyadema son: thief" and "Chirac thief," referring to French President Jacques Chirac who had a close relationship with Eyadema. Former colonial ruler France has hundreds of soldiers permanently based in Lome.
One large white banner held by about 10 people read: "Mr Chirac, you have French people in Togo. Be careful."
Thousands of young Gnassingbe supporters from the ruling party gathered separately on Saturday at the president's residence and said they would support him in the polls.
"I want to tell you that it is necessary to remain determined but dignified because 60 days is a very short time," Gnassingbe told the crowd from a balcony.
Eyadema, Africa's longest serving leader, seized power in a 1967 coup and brooked little opposition.