Nato has released satellite images it says show Russian armed forces inside Ukrainian territory to help rebels fight government forces.
Ukraine's president held a security council meeting on Thursday over the "sharp aggravation of the situation". Russia has denied the claims.
Earlier, rebels opened a new front in the south by seizing the coastal town of Novoazovsk.
At least 2,119 people have been killed in four months of fighting.
Amid condemnation from Western powers, the United Nations Security Council has held an emergency meeting in New York to discuss the crisis.
"Russia has to stop lying and stop fuelling this conflict," the US ambassador to the UN, Samantha Power, told the council.
Britain's ambassador Sir Mark Lyall Grant said Russia was guilty of "a clear violation of sovereign Ukrainian territory", adding that the conflict would "no longer exist" without Russia's direct support for separatists.
Meanwhile Russia's ambassador to the UN, Vitaly Churkin, called the crisis a "direct consequence of the reckless policy of Kiev, which is conducting a war against its own people".
Speaking in Washington, US President Barack Obama accused Russia of encouraging, training, arming and funding separatists in eastern Ukraine.
Mr Obama, who will fly to Europe next week for the Nato summit, warned that Russia was already isolated internationally.
Nato Brigadier General Niko Tak said more than 1,000 Russian troops were operating inside Ukraine, both supporting the separatists and fighting on their side.
He told the BBC there had been a "significant escalation in the level and sophistication of Russia's military interference in Ukraine" over the past two weeks.
"[Nato has] detected large quantities of advanced weapons, including air defence systems, artillery, tanks, and armoured personnel carriers being transferred to separatist forces in eastern Ukraine," he said.
"Russia is reinforcing and resupplying separatist forces in a blatant attempt to change the momentum of the fighting, which is currently favouring the Ukrainian military."
But Russia's ambassador to the European Union, Vladimir Chizhov, said Nato had "never produced a single piece of evidence" for its accusations.
He said the only Russian soldiers on Ukrainian soil were 10 paratroopers captured earlier this week.
German Chancellor Angela Merkel has announced the European Council will discuss taking further sanctions against Russia during a summit on Saturday.
Other European leaders echoed her sentiments:
- British Prime Minister David Cameron warned that if Russia failed to find a political solution, "she should be in no doubt that there will be further consequences"
- Polish Foreign Minister Radoslaw Sikorski called the deployment of Russian troops an "aggression" and said international action was needed
- French President Francois Hollande said it would be "intolerable" if Russian troops were in Ukraine, and demanded Russia stop sending aid to the rebels.
Ukraine's security council announced a return to mandatory conscription on Thursday after holding a meeting with President Petro Poroshenko.
"The situation is extremely difficult, but it is manageable enough for us not to panic and continue calculating our actions," the president told security chiefs.
Prime Minister Arseny Yatsenyuk earlier warned Russia had "unleashed a war in Europe", and called on the international community to take "effective steps".
President Vladimir Putin received authorisation from parliament to use troops in Ukraine in March. But in June, during an easing of tension, he asked for that authorisation to be revoked.
The statements that the Russian soldiers in eastern Ukraine are "volunteers" and "on leave" both add a layer of implausible deniability, and get around Russia's own constitutional and legal safeguards against sending servicemen abroad without the proper authority.
Meanwhile, Russia's next steps are an open question. One concern is that the more direct involvement of Russian troops may create the conditions for a "humanitarian intervention" by Russia, using "peacekeepers".
Ukrainian government forces had made significant advances against the separatists in recent weeks, but those gains seem in doubt with rebels now operating in two distinct areas of Donetsk region.
Separatist leader Alexander Zakharchenko earlier told Russian TV that 3-4,000 Russian citizens were fighting in their ranks.
He said many of the Russians were former service-people or current service personnel on leave, insisting that all were volunteers.
Ukraine confirmed reports that Novoazovsk had been captured by the rebels, whom they described as "Russian troops".
It said it had withdrawn its armed forces to save lives, and that Ukrainian soldiers were now reinforcing the defences of the strategic port city of Mariupol.
The port has until now been largely peaceful and cut off from rebel positions.
Pro-Russian fighters have been trying for weeks to break out of an area further north in the Donetsk region where they are almost encircled.
Analysts say the separatists could also be seeking a land link between Russia and Crimea, which would give them control over the entire Sea of Azov.
Russia annexed the Black Sea peninsula of Crimea from Ukraine in March.
War in eastern Ukraine: The human cost
- At least 2,119 people had been killed and 5,043 wounded since mid-April, a UN report on 7 August said
- 951 civilians have been killed in Donetsk region alone, the official regional authorities said on 20 August
- Official casualty counts only record certified deaths while in some particularly dangerous parts of the war zone, such as Luhansk region, victims are said to have been buried informally, for instance in gardens
- Rebels (and some military sources) accuse the government of concealing the true numbers of soldiers killed
- 155,800 people have fled elsewhere in Ukraine while at least 188,000 have gone to Russia.