Pro-Russian separatists walk at a destroyed war memorial on Savur-Mohyla, a hill east of the city of Donetsk, August 28, 2014. REUTERS/Maxim Shemetov

By Richard Balmforth and Pavel Polityuk

KIEV (Reuters) - Ukraine's president said on Thursday that Russian troops had entered his country in support of pro-Moscow rebels who captured a key coastal town, sharply escalating a five-month-old separatist war.

President Petro Poroshenko told a meeting of security chiefs that the situation was "extraordinarily difficult ... but controllable" after Russian-backed rebels seized the town of Novoazovsk in the southeast of the former Soviet republic.

Earlier Poroshenko said he had cancelled a visit to Turkey because of the "rapidly deteriorating situation" in the eastern Donetsk region, "as Russian troops have actually been brought into Ukraine".

Russia's defence ministry again denied the presence of its soldiers in Ukraine, using language redolent of the Cold War.

"We have noticed the launch of this informational 'canard' and are obliged to disappoint its overseas authors and their few apologists in Russia," a ministry official, General-Major Igor Konashenkov, told Interfax news agency. "The information contained in this material bears no relation to reality."

But sceptical Western governments appeared to be running out of patience with Moscow's denials.

Referring to talks that Putin held with Poroshenko just two days ago, British Prime Minister David Cameron said: "It is simply not enough to engage in talks in Minsk, while Russian tanks continue to roll over the border into Ukraine. Such activity must cease immediately."

Poland's foreign minister said Russian "aggression" had created the most serious security crisis in Europe for decades. A top NATO official said Russia had significantly escalated its "military interference" in Ukraine in the past two weeks.

"We assess well over 1,000 Russian troops are now operating inside Ukraine," said Dutch Brigadier-General Nico Tak, head of NATO's crisis management centre. "They are supporting separatists (and) fighting with them."

Two human rights advisers to Putin said that more than 100 Russian troops had died in Ukraine in a single attack on Aug. 13, and one of them said she considered Russia's actions an invasion.

Global stock markets fell on news of the worsening crisis, which has prompted the United States and European Union to impose sanctions on Moscow and led both Russia and NATO to step up military exercises, creating the tensest East-West standoff since the Soviet Union collapsed in 1991.

The United States is considering a number of options in response to Russian involvement in eastern Ukraine and believes sanctions are the "most effective tool", U.S. State Department spokeswoman Jen Psaki said.

German Chancellor Angela Merkel said an EU summit on Sunday would discuss the possibility of further sanctions.

NEW FRONT

Rebel advances this week have opened a new front in the conflict just as Ukraine's army appeared to have gained the upper hand, virtually encircling the separatists in their main strongholds of Donetsk and Luhansk.

A Ukrainian presidential spokesman said on Twitter that Poroshenko's central message to his security chiefs was: "We are capable of defending ourselves. The main thing is not to panic."

The defence and security council said it was re-introducing compulsory military service from this autumn, but conscripts would not serve in the conflict zone.

Earlier, the council said Novoazovsk, on the Azov Sea, and other parts of southeast Ukraine had fallen under the control of Russian forces, and a counter-offensive by Russian troops and separatist units was continuing.

It said Ukrainian government forces had withdrawn from Novoazovsk "to save their lives" and were now reinforcing defences in the port of Mariupol further west, which a rebel leader said was the separatists' next objective.

"Today we reached the Sea of Azov, the shore, and the process of liberating our land, which is temporarily occupied by the Ukrainian authorities, will keep going further and further," Alexander Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, told Reuters in an interview.

He said there were about 3,000 Russian volunteers serving in the rebel ranks.

Ukrainian Prime Minister Arseny Yatseniuk appealed to the United States, EU and G7 countries "to freeze Russian assets and finances until Russia withdraws armed forces, equipment and agents".

Story continues