Poroshenko calls for strong response to 'military aggression' in his country, while Barroso laments 'serious' situation

The European Union has warned that the apparent incursion of Russian troops on Ukrainian soil pushes the conflict closer to a point of no return, with new economic sanctions being drawn up to make Moscow reconsider its position.

The 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 foreign troops and hundreds of 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 peace and stability of Europe."

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.

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 at war against Europe," she said, also in English. Calling on EU countries to supply Kiev with military equipment, she went on: "That means we need to help Ukraine to … defend its territory and its people and to help militarily, especially with the military materials to help Ukraine defend itself because today Ukraine is fighting a war on behalf of all Europe."

Nato estimates that at least 1,000 Russian soldiers are in Ukraine even though Russia denies any military involvement in the fighting that has according to the UN claimed 2,600 lives.

David Cameron also warned that Europe cannot be complacent about Russian troops on Ukrainian soil. "Countries in Europe shouldn't have to think long before realising 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 Ukrainian military also reported that one of its fighter jets had been shot down by Russian anti-aircraft fire, although the pilot managed to eject to safety.

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.

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 neighborhoods. Shelling was also reported elsewhere in the city.

Poroshenko said Ukraine would welcome an EU decision to help with military equipment and further intelligence-sharing.

In Brussels, European Commission President Jose Manuel Barroso said "sanctions are not an end in themselves," but a means to dissuade Russia from further destabilising Ukraine.

"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.

Grybauskaite added that an arms embargo on Russia should be tightened by including a halt on sales under existing contracts – a thinly-veiled swipe at France, which has resisted calls to cancel a deal to sell Moscow a strategic new warship. This came after the German vice-chancellor, Sigmar Gabriel, told journalists: "It is clear that after this intervention by Russia in Ukraine … EU leaders will certainly task the European commission with preparing the next level of sanctions."

"We see regular Russian army units operating offensively on the Ukrainian territory against the Ukrainian army. We must call a spade a spade," said the Swedish foreign minister, Carl Bildt.

All options except military action will be considered to punish Russia for pursuing "the wrong path", said Jean Asselborn, Luxembourg's foreign minister.

According to Agence France-Presse (AFP), Putin held late-night discussions about Ukraine with the French president, François Hollande, and Barroso.

Kiev and Moscow had agreed to hold high-level discussions between army leadership and border control agencies, and an official told AFP that heads of border control will meet on Saturday. "They will discuss measures to protect Ukrainian territory from breaches by militants and equipment," Sergiy Astakhov, an aide to the head of Kiev's border service, said.

UN figures suggest that fighting between Ukrainian military forces and Russian-backed separatists in eastern Ukraine has already claimed at least 2,200 lives.

Nato estimates that there are at least 1,000 Russian soldiers in Ukraine, while Kiev claimed this week that Russian tanks and armoured vehicles entered the country as rebels opened a new front along the Azov Sea coast. Russia consistently denies that its forces are in Ukraine and allegations that it is supplying the rebels.

Until this week, the fighting had been concentrated inland. But rebels have taken control of the town of Novoazovsk, with the apparent aim of pushing further west along the coast connecting Russia to the Crimean peninsula.