EU leaders are meeting in Brussels to discuss the crisis in Ukraine, threatening to impose fresh sanctions against Russia.
EU foreign policy chief Catherine Ashton accused Russia of "direct aggression" in eastern Ukraine.
Ukrainian President Petro Poroshenko said his country was "close to a point of no return - full scale-war".
Russia denies that its forces are backing rebels, who have been gaining ground on Ukrainian forces.
Baroness Ashton said there was "deep concern" over "direct aggression by Russian forces". She called on Russia to stop the flow of arms, equipment and personnel into Ukraine.
As she arrived at the talks in Brussels, Lithuanian President Dalia Grybauskaite said Russia was "practically in a war against Europe".
She said: "We need to support Ukraine, and send military materials to help Ukraine defend itself. Today Ukraine is fighting a war on behalf of all Europe."
UK Prime Minister David Cameron said the EU faced "a completely unacceptable situation of having Russian troops on Ukrainian soil. Consequences must follow if that situation continues".
French President Francois Hollande said the Ukraine crisis was the biggest since the end of the Cold War.
He said: "What's happening in Ukraine is so serious that the European Council will be obliged to react by increasing the level of sanctions if things remain as they are."
The EU and the US have already imposed sanctions against dozens of senior Russian officials, separatist commanders and Russian firms accused of undermining Ukrainian sovereignty.
However, the BBC's Chris Morris in Brussels says there are still divisions within the EU on how to deal with the Ukraine situation.
Finnish Prime Minister Alexander Stubb said the "jury is still out" on whether sanctions had worked, adding: "We need to find a ceasefire, a peace plan."
Mr Poroshenko, who is at the summit, said Ukraine was a victim of "military aggression and terror" involving "thousands of foreign troops and hundreds of foreign tanks".
He said that new EU sanctions against Russia would be prepared and would be implemented depending on the success of his peace plan.
He said he hoped to publish a draft of the peace plan next week.
Mr Poroshenko also said that he would discuss the possibility of a ceasefire at a meeting in Belarus on Monday of the Contact Group, which includes Ukraine, Russia, Belarus and the Organization for Security and Cooperation in Europe (OSCE).
'Ordered to retreat'
Government forces have lost ground in recent fighting.
A Ukrainian military spokesman said on Saturday that Russian tanks had attacked the town of Novosvitlivka near Luhansk and "destroyed virtually every house".
Spokesman Andriy Lysenko said troops had been ordered to retreat from Novosvitlivka.
Troops are also reportedly trying to evacuate Ilovaisk in the Donetsk region. It has been surrounded by rebels.
Rebel leader Alexander Zakharchenko told the Russian News Service radio station a new offensive was being planned to create a corridor between Donetsk and Luhansk.
In south-eastern Ukraine, people have been leaving the port city of Mariupol, after advancing rebels captured Novoazovsk to the east.
Western and Ukrainian officials say this offensive has been substantially helped by Russian regular troops, opening a new front. Russia denies the accusation.
Some 2,600 people have died in fighting in the Donetsk and Luhansk regions since April.
The conflict erupted following Russia's annexation of Ukraine's southern Crimea peninsula a month before.
War in eastern Ukraine: The human cost
- At least 2,593 people killed since mid-April (not including 298 passengers and crew of Malaysian Airlines MH17, shot down in the area) - UN report on 29 August
- 951 civilians killed in Donetsk region alone, official regional authorities said - 20 August
- In some particularly dangerous places, such as Luhansk region, victims are said to have been buried informally, making accurate counts difficult
- Rebels (and some military sources) accuse the government of concealing true numbers
- 155,800 people have fled elsewhere in Ukraine while at least 188,000 have gone to Russia