The European Union is giving Russia a one-week ultimatum to scale back its intervention in Ukraine or face additional economic sanctions.
EU summit chairman Herman Van Rompuy said early Sunday that the bloc's 28 leaders tasked its executive body to "urgently undertake preparatory work for consideration within a week."
He says "everybody is fully aware that we have to act quickly."
Still, in apparent fear of an economic backlash, EU leaders shied away from immediately imposing tougher sanctions. Russia is the EU's No. 3 trading partner and one of its biggest oil and gas suppliers.
On Saturday, the EU warned that the apparent incursion of Russian troops on Ukrainian soil pushes the conflict closer to a point of no return.
Ukrainian President Petro Poroshenko, who briefed a summit of the 28-nation EU's leaders in Brussels, said a strong response was needed to the "military aggression and terror" facing his country.
"Thousands of the foreign troops and hundreds of the foreign tanks are now on the territory of Ukraine," Poroshenko told reporters in English. "There is a very high risk not only for peace and stability for Ukraine, but for the whole ... of Europe."
French President Francois Hollande and Swedish Prime Minister Fredrik Reinfeldt said at the summit in Brussels the leaders will make a political decision and then ask the EU's executive arm to finalize the fine print of new sanctions.
However, because several EU nations fear the fallout of sanctions on their own economies, it wasn't immediately clear whether the required unanimity would be reached for immediate punitive measures, or whether the leaders would set Russia another ultimatum.
But Lithuanian leader Dalia Grybauskaite insisted Russia's meddling in Ukraine, which seeks closer ties with the EU, amounts to a direct confrontation that requires stronger sanctions.
"Russia is practically in the war against Europe," she said in English.
NATO estimates that at least 1,000 Russian soldiers are in Ukraine even though Russia denies any military involvement in the fighting that has so far claimed 2,600 lives, according to U.N. figures.
British Prime Minister David Cameron also warned that Europe can't be complacent about Russian troops on Ukrainian soil.
"Countries in Europe shouldn't have to think long before realizing just how unacceptable that is," he said. "We know that from our history. So consequences must follow."
Poroshenko told reporters that he believed efforts to halt the violence were "very close to a point of no return," warning that failure could lead to a "full-scale war."
Conceding ground in the face of a reinvigorated rebel offensive, Ukraine said Saturday that it was abandoning a city where its forces have been surrounded by rebels for days. Government forces were also pulling back from another it had claimed to have taken control of two weeks earlier.
The statements by Col. Andriy Lysenko, a spokesman for the national security council, indicate that Ukrainian forces face increasingly strong resistance from Russian-backed separatist rebels just weeks after racking up significant gains and forcing rebels out of much of the territory they had held.
Poroshenko, meanwhile, said Ukraine would welcome an EU decision to help with military equipment and further intelligence-sharing.
The office of the Donetsk mayor reported in a statement that at least two people died in an artillery attack on one of Donetsk's neighbourhoods. Shelling was reported elsewhere in the city, but there was no immediate word on casualties.
In Brussels, European Commission President Jose Manuel Barroso said "sanctions are not an end in themselves," but a means to dissuade Russia from further destabilizing Ukraine.
"We may see a situation where we reach the point of no return," Barroso warned. "If the escalation of the conflict continues, this point of no return can come."
He provided no specifics about which sanctions the heads of state and government might adopt to inflict more economic pain to nudge Russia toward a political solution.
The U.S. and the EU have so far imposed sanctions against dozens of Russian officials, several companies and the country's financial industry. Moscow has retaliated by banning food imports.
Grybauskaite said the EU should impose a full arms embargo, including the cancelling of already agreed contracts. France has so far staunchly opposed that proposal because it has a $1.6 billion contract to build Mistral helicopter carriers for Russia.
The EU's requirement for a unanimous agreement among the 28 nation has in the past blocked or softened decisions since some nations fear the economic fallout.
Russia is the EU's No. 3 trading partner and one of its biggest oil and gas suppliers. The EU, in turn, is Russia's biggest commercial partner, making any sanctions more biting than similar measures adopted by the U.S.