Western powers led by US President Barack Obama warned yesterday that Russia faced fresh sanctions over Ukraine as Kiev accused Moscow of seeking to trigger a "third world war".
The threat came amid heightened tensions on the ground as the Ukrainian military launched a new offensive to besiege the rebel-held city of Slavyansk and insurgents blew up an army helicopter with a rocket-propelled grenade.
Seven members of an OSCE observer mission in Ukraine were also seized by rebels in the city, the interior ministry said.
Following a conference call with Obama, plus the leaders of Britain, France and Italy, German Chancellor Angela Merkel announced that EU ministers would meet soon to agree new measures targeting Russia.
"Given the absence of progress, we have to think about - and not just think about, but act on - the option of new sanctions," Merkel said.
The United States and the European Union have already targeted Russian President Vladimir Putin's inner circle with visa and asset freezes and imposed sanctions on a key Russian bank.
Western leaders have repeatedly threatened to hit Russia with measures aimed at the wider economy.
"The heads of state ... have called for a rapid reaction by the G7 and raised the prospect of new sanctions by the international community against Russia," the French presidency said.
The leaders urged Russia to stop its "intimidation" of Ukraine and stressed a presidential poll scheduled for May 25 was "essential" to stabilise the country.
Meanwhile, Ukrainian authorities ratcheted up military operations against pro-Russian rebels in the east and their cold war-style rhetoric.
"The world hasn't forgotten the second world war and Russia wants to start a third world war," Ukrainian Prime Minister Arseniy Yatsenyuk said.
Kiev announced its forces were now seeking to "blockade" rebels inside Slavyansk, in a bid to prevent militant reinforcements arriving and to spare civilian casualties.
On Thursday, Ukrainian armoured vehicles and commandos had made a brief but dramatic incursion into Slavyansk, killing a 22-year-old insurgent. But the rebels were defiant yesterday, vowing: "We will not surrender the town."
The main separatist leader in Slavyansk said a military "spy" for the Kiev government was in a group of international military observers seized by the rebels.
"People who come here as observers for the European community bringing with them a real spy - that is inappropriate," said Vyacheslav Ponomaryov, de facto mayor of the city.
The Organisation for Security and Co-operation in Europe did not confirm the information.
Only 16 kilometres to the south, at an air base close to the city of Kramatorsk, a rocket-propelled grenade blew up a Ukrainian military helicopter sitting on the tarmac, officials in Kiev said. The pilot escaped but was wounded.
Russia responded to Ukraine's military offensive by ordering its troops massed on the border to launch new drills.
Russian Foreign Minister Sergei Lavrov claimed Kiev's offensive was part of a US plot to "seize" Ukraine for its own "geopolitical ambitions and not the interests of the Ukrainian people".