European leaders gathered in Brussels on Saturday night to wrestle with how to get a failing policy on Ukraine back on track, amid fears that Vladimir Putin's campaign in the east of the country could spiral into full-scale war.

The summit was formally called to wrangle over who should get the top jobs in the EU for the next five years, but emergency meetings between Ukraine's president, Petro Poroshenko, and European leaders underlined how the gathering was hijacked by fears of war on the EU's eastern flank.

As expected, Poland's prime minister, Donald Tusk, was appointed president of the European council, running the summit and affairs between the 28 heads of government, while the Italian foreign minister, Federica Mogherini, was made foreign policy chief and vice-president of the next European commission, replacing Britain's Catherine Ashton.

Arriving at the summit, David Cameron warned Putin there would be "consequences" if Russian troops did not leave Ukraine, saying the incursion was "completely unacceptable". Following Putin's decision to send troops and heavy armour into eastern Ukraine, Lithuania's president, Dalia Grybauskaite, declared that Russia was "practically at war with Europe".

The Polish foreign minister, Radek Sikorski, tweeted: "If it sounds like a war, if it kills like a war, it is a war."

Following talks with Poroshenko and after speaking by phone to Putin, José Manuel Barroso, the outgoing head of the European commission, said: "We are in a very serious, I would say, dramatic situation where we can reach the point of no return."

Poroshenko said: "We are hoping that in the very next days, starting from Monday, we can demonstrate real progress in the peace negotiations. Why? Because we are too close to the border where from there would be no return to the peace plan.

"Thousands of the foreign troops and hundreds of the foreign tanks are on the territory of Ukraine. There is a very high risk, not only for peace and stability for Ukraine, but for the whole peace and stability of Europe."

The Europeans were divided over the desirability of escalating the sanctions tit-for-tat with Russia as Britain, according to officials, pressed for tougher action and the Germans, while agreeing on the need for more penalties, sought to delay them.

Chancellor Angela Merkel has been at the forefront of the diplomatic effort to get Putin to back down. She went to Ukraine for the first time in the six-month crisis last weekend, but Putin's escalation of the conflict since then suggested that she had failed. Her vice-chancellor and Social Democratic party leader, Sigmar Gabriel, said the summit would definitely call for "preparing the next level of sanctions".

The EU has used the word "preparation" to delay implementation of punitive measures, although it upped the ante last month, targeting Russian financial, energy and defence sectors. Moscow responded by banning EU food imports. The prospects are growing of a full-blown trade war, with diplomats saying embargos on the diamond, caviar and vodka industries are being considered. The Finnish prime minister, Alex Stubb, said no sanctions would be agreed immediately.

Senior EU diplomats also said there were growing calls to boycott or cancel Russia's hosting of the football World Cup in 2018.