David Cameron has fired a diplomatic warning shot at Russian president Vladimir Putin, telling him the west’s relations with Russia had reached a crossroads and demanding that he relent by allowing independent observers to monitor events on its Ukrainian border.

As other western leaders also reinforced messages to Putin that he risked more economic sanctions if he failed to end Russian backing for separatist rebels in Ukraine, Downing Street sources said a 50-minute meeting on Saturday between Cameron and Putin on the margins of the G20 summit in Brisbane had involved robust exchanges. The only encouraging aspect was that Putin said he was still interested in the principle of Ukraine remaining a single political space.

Throughout Saturday Putin endured bruising encounters with European leaders including German chancellor Angela Merkel and French president François Hollande. In particularly frosty exchanges, Canadian prime minister Stephen Harper told the Russian president: “I’ll shake your hand, but I only have one thing to say to you: you need to get out of Ukraine.” Putin’s response was not positive, said Harper’s spokesman. Barack Obama stressed that the US was at the forefront of “opposing Russia’s aggression against Ukraine, which is a threat to the world”.

It now seems likely that the number of Russian individuals subject to asset freezes and travel bans will be increased, probably at a meeting for EU foreign ministers on Monday. New names are likely to be individuals elected in the illegal elections in Donetsk last month.

It is not expected there will be any more economic sanctions on the banking and energy sectors at this stage, partly to give time for Putin to show whether he is willing to rein in the activities of Russian-supported separatists in eastern Ukraine. The general destabilisation in Ukraine has led to a run on the Russian rouble. There were even suggestions at the G20 – denied later by the Kremlin – that Putin would leave the summit early. A source in his delegation told Reuters that the Russian president would depart before it ended, skipping a working breakfast on Sunday, because he needed to return to meetings in Moscow.

But Kremlin spokesman Dmitry Peskov denied any such plans, saying: “This is wrong. The president is taking part in all the [G20] events.”

Britain is supporting efforts for the Organisation for Security and Co-operation in Europe to place monitors or drones on the borders between Russian and Ukraine to test claims by Putin, repeated on Saturday, that Russia is providing neither equipment nor soldiers to the rebels. In the meeting, Putin referred back to the coup earlier this year, but Cameron said the focus should be on the future rather than a dispute about the merits of past events.

Cameron said before the meeting: “If the current path continues and if the destabilisation continues to get worse, the rest of the world – Europe, America, Britain – will have no choice but to take further action in terms of sanctions.”

EU member states are due to meet Obama on Sunday to decide on any further action. Merkel told reporters the situation was unsatisfactory. The Ukraine conflict has seen 4,000 people killed, and the atmosphere has worsened in recent weeks, with claims by Nato that Russian troops are operating on Ukrainian sovereign territory.