By Alexei Anishchuk and Jane Wardell

BRISBANE Australia (Reuters) - Western leaders warned Vladimir Putin at a G20 summit on Saturday that he risked more economic sanctions if he failed to end Russian backing for separatist rebels in Ukraine.

Russia denied any involvement in an escalation of the separatist war in eastern Ukraine, where more than 4,000 people have been killed since April, but faced strong rebukes from leaders including U.S. President Barack Obama and Canadian Prime Minister Stephen Harper.

"I guess I’ll shake your hand but I have only one thing to say to you: you need to get out of Ukraine," Harper told Putin at the summit in Brisbane, Australia, according to his spokesman Jason MacDonald.

Putin's response to the comment was not positive, MacDonald said in an email, without elaborating.

A source in Putin’s delegation told Reuters that the Russian president would leave the summit early, 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."Western nations have imposed successive rounds of sanctions on Moscow, accusing it of sending troops and tanks to back pro-Russian rebels fighting to break away from Ukraine. Russia denies the charges.

The measures, aimed at sectors like oil and banking, as well as individuals close to Putin, are squeezing Russia's economy at a time when falling oil prices are straining the budget and the rouble has plunged on financial markets.

Obama said the United States was at the forefront of "opposing Russia's aggression against Ukraine, which is a threat to the world, as we saw in the appalling shoot-down of MH17" -- a reference to the downing of a Malaysian airliner over rebel-held territory on July 17, with the loss of 298 lives.

German Chancellor Angela Merkel said the European Union was considering further financial sanctions against Russian individuals because of the crisis in Ukraine.

"The present situation is not satisfying," she told reporters. "At present the listing of further persons is on the agenda."

Putin's isolation was evident with his placing on the outer edge for the formal G20 leaders' photograph. While Obama and Chinese Premier Xi Jinping were met by Australia's governor general and attorney general when they arrived in Brisbane, Putin was greeted by the assistant defense minister.

Despite being under intense pressure, Putin was all smiles, shaking hands with Australian Prime Minister Tony Abbott. The host had threatened to "shirt front", or physically confront, Putin over the downing of MH17, in which 28 Australians died.

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A Kremlin spokesman said the Ukraine crisis was the only topic discussed at a one-on-one meeting between Putin and British Prime Minister David Cameron, but he added both expressed interest in "ending confrontation" and rebuilding relations. Putin also met French President Francois Hollande, and both agreed to protect their ties from the effects of sanctions, the spokesman said.

The European Union demanded Moscow withdraw troops and weapons from Ukraine and put pressure on rebels there to accept a ceasefire, after the latest fighting wrecked a truce agreed in September.

EU foreign ministers will meet on Monday to assess the situation in Ukraine and whether further steps including additional sanctions are needed against Russia, said European Council President Herman Van Rompuy. Obama plans to meet European leaders to discuss the matter on Sunday, he added.

Outside the summit, Ukrainian Australians staged an anti-Putin protest, wearing headbands reading "Putin, Killer".

Draped with the flags of the nations that lost citizens when flight MH17 was shot down, the demonstrators lay on a large Ukrainian flag, in what they said was a protest at the "murderous acts" Russia's president was responsible for.

Russian state-controlled TV on Friday broadcast what it called "sensational" photographs supporting Moscow's version that the plan was downed by a Ukrainian fighter jet, but several commentators described the pictures as fakes.

(Additional reporting by Jane Wardell, Matt Spetalnick, Matt Siegel, Ian Chua and Lincoln Feast in Brisbane; Writing by Michael Perry; Editing by Mark Trevelyan)