Russia trembles on brink of war with Ukraine as EU leaders ready new sanctions

A pro-Russian fighter rests ontop a T-64 tank, Vladimir Putin is used for target practice and cars are stopped at a checkpoint in Donetsk as residents flee. Photo / AFP

Russia is "practically in a state of war against Europe", with the crisis in Ukraine rapidly approaching "the point of no return", warn EU leaders.

At a summit in Brussels, they met to discuss toughened economic sanctions on Moscow, specifically targeting Russia's finances, oligarchs linked to President Vladimir Putin and the country's vast mineral wealth.

Leaders have given Russia a week to reverse course in Ukraine or face a new round of sanctions. European Union President Herman Van Rompuy said the 28 leaders agreed to take "further significant steps" if Moscow did not back down. The European Commission, the EU's executive arm, had been ordered to produce options for new sanctions within a week, he said.

"Everybody is fully aware that we have to act quickly given the evolution on the ground and the tragic loss of life of the last days," Van Rompuy said.

Dalia Grybauskaite, Lithuania's President and a staunch critic of Putin, called on the EU to get serious as Russia's war in the Ukraine menaced peace in Europe for the first time in decades.

"Russia is in a state of war against Ukraine, and that is against a country which wants to be part of Europe. Russia is practically in a state of war against Europe," she said.

EC President Jose Manuel Barroso said the EU was prepared for new sanctions and pleaded with the Russian President to step back from the brink of outright war with Ukraine.

"We are in a very serious - I would say dramatic - situation. We may see a situation where we reach the point of no return. If the escalation of the conflict continues, this point of no return can come," he said after meeting Petro Poroshenko, Ukraine's President.

"The opening of new fronts and the use of Russian regular forces is not acceptable and represents a grave transgression. No one's interest is served by new wars on our continent."

Poroshenko appealed to EU leaders not to stand by. "Today we are talking about the fate of Ukraine, but tomorrow it could be the fate of security and stability of all of Europe," he said.

German Chancellor Angela Merkel said the new sanctions would build on existing measures against Russia which mainly cover financial services, armaments and energy.

British Prime Minister David Cameron has pledged to use the City of London to cut Russia's economy off from cash, say diplomatic sources, and has privately pushed to remove hosting rights for the 2018 Football World Cup.

UN figures put the death toll in the conflict at almost 2600. Ukrainian officials said the rebels had made new gains just east of the border city of Luhansk, a key stronghold.

"The Russians are continuing to send military equipment and 'mercenaries'," Ukraine's defence and security council said in a Twitter post.

Watch: EU warns Ukraine crisis near 'point of no return'

European leaders have told Putin that unless he withdraws troops and pulls back from "direct military confrontation between Ukrainian and Russian military forces", the EU will move to introduce new sanctions.

Barroso said officials and diplomats had already drawn up measures focused on cutting off Russia's access to financing its economy and preventing Russian energy companies from buying Western technology.

The new economic sanctions are expected to include measures to paralyse Russia's banking system and to hit its immense mineral wealth.

European diplomats are also drawing up a list of political sanctions aimed at Putin's highly developed sense of prestige, robbing him of high-profile sporting events, such as the World Cup, and barring him from participating in international summits.

Francois Hollande, the French leader, called it "the biggest crisis since the end of the Cold War".

Rebels size up parts of Ukraine

At the entrance to Novoazovsk, a tank squats behind a freshly dug earth bank, its barrel pointing west, with the red and blue flag of "Novorossia", the latest incarnation of the separatist fighters' self-declared state, flying on the turret.

But if the fighters here get their way, it won't be parked there long. With the backing of President Vladimir Putin, they are eyeing up a band of territory stretching from the Russian border into the far west of Ukraine.

First in their sights is the Black Sea city of Mariupol and then many more towns and cities in Ukraine.

"Mariupol? Yeah, we're going to take Mariupol. And then we're going all the way to Lviv," said a stocky man with a beard and a camouflage-painted Kalashnikov. "Our goal is Novorossia. All of it. Odessa, Kherson, everything."

"Swat", a turncoat Ukrainian special forces lieutenant colonel, said his rebel fighters seized a stretch of beach last week that has become Novorossia's first outlet to the sea - depriving Ukraine's control of its southern border with Russia.

- additional reporting AFP