Ukraine and the West said Thursday that Russian troops were actively involved in the fighting tearing apart the east of the country, raising fears of a direct military confrontation between Kiev and its former Soviet master.
US President Barack Obama led a chorus of growing international condemnation over the escalating crisis, saying it was "plain for the world to see" that Russian forces were fighting in Ukraine, despite more repeated denials by Moscow.
Obama and German Chancellor Angela Merkel warned that Russia's actions "cannot remain without consequences" as the US and Europe raised the prospect of fresh sanctions against Russia.
"Russia has deliberately and repeatedly violated the sovereignty and territorial integrity of Ukraine, and the new images of Russian forces inside Ukraine make that plain for the world to see," Obama said, ratcheting up the pressure on Russian President Vladimir Putin.
"This ongoing Russian incursion into Ukraine will only bring more costs and consequences for Russia."
NATO said at least 1,000 Russian troops were on the ground supporting pro-Kremlin separatists who have been fighting against Kiev's rule since April.
The United States and the European Union have already imposed a series of punishing sanctions on Moscow over the crisis, the worst standoff between Russia and the West since the Cold War.
Merkel said European leaders would discuss possible new measures against Moscow at a summit in Brussels on Saturday.
On a day of fast-moving developments, US envoy Samantha Power, at an emergency meeting of the UN Security Council in New York, demanded in blunt terms that Russia "stop lying".
"The mask is coming off," she thundered.
"We see Russia's actions for what they are: a deliberate effort to support and now fight alongside illegal separatists in another sovereign country."
Ukrainian President Petro Poroshenko described the situation as "extremely difficult" but "manageable for us not to panic", as security chiefs announced that mandatory army conscription would resume in the autumn.
US officials have accused Russian troops of being behind a lightning counter-offensive that has seen pro-Moscow rebels seize swathes of territory from Ukrainian government forces, dramatically turning the tide in the four-month conflict.
Kiev said Russian soldiers had seized control of a key southeastern border town and a string of villages in an area where fighting had been raging for days.
- Russians 'directly involved' -
The US ambassador to Kiev, Geoffrey Pyatt, wrote on Twitter that Moscow's troops were now "directly involved in the fighting" in Ukraine.
A NATO official said the supply of weapons to the rebels had also increased in both "volume and quantity," with a diplomatic source later adding that ambassadors to the alliance would hold an emergency meeting Friday.
Fears that the flare-up in the conflict could lead to all-out war pushed stocks down in Europe and the United States, and Asia looked set to follow suit.
Russia's ruble sunk to a five-month low as stock markets in the country plummeted over the possibility of new sanctions.
Kiev had called on the West for urgent help after a counter-offensive from the southeast border smashed through an army blockade around the separatist stronghold of Donetsk and threatened the government-held port city of Mariupol.
The gains by the separatist fighters come after weeks of government offensives that had seen troops push deep into the last holdout rebel bastions in Ukraine's industrial heartland.
Ukraine's Prime Minister Arseniy Yatsenyuk blasted Putin for having "deliberately unleashed a war in Europe" and pleaded for urgent action.
A top rebel leader, Alexander Zakharchenko, has admitted that Russian troops were fighting alongside his insurgents, but said they were on "holiday" after volunteering to join the battle.
The spiralling tensions come only days after Poroshenko and Putin held their first meeting in three months, but they failed to achieve any concrete breakthrough despite talk of a peace roadmap.
- No Ukraine guarantee -
The latest claims of Russian manoeuvres are sparking fears that Moscow is seeking more than Crimea, which it annexed in March in the face of Western outrage.
"The latest newsflow from eastern Ukraine suggests an increased risk that Russian President Putin may go well beyond snatching Crimea and destabilising the pro-Western government in Kiev. Instead, he is edging closer to an almost-invasion to occupy parts of southeastern Ukraine," said Berenberg bank analyst Christian Schulz.
Russian Foreign Minister Sergei Lavrov insists the Kremlin is "not interested in breaking up" Ukraine.
The United Nations estimates the conflict has killed over 2,200 people and forced more than 400,000 to flee since April.
Russia vehemently opposes closer ties between Ukraine and NATO.
Concerns that Kiev could be drawn closer into the Western security alliance -- and towards Europe -- are seen as a key motivation behind Russia's actions in recent months.
Obama, who will host Poroshenko at the White House on September 18, said while ex-Soviet states now in the alliance could expect a US military defense, such guarantees did not apply to non-member Kiev.