NATO warned Russia on Friday over what it described as a "blatant violation" of Ukraine's sovereignty after the West accused Moscow of direct involvement in the escalating conflict.
Military attaches examine a Russian weapons cache displayed in Kiev on August 29, 2014
Fears of a wider confrontation have spiralled after NATO said Russia had sent troops to fight in Ukraine and funnelled huge amounts of heavy weaponry to pro-Kremlin rebels in what Kiev branded an invasion.
"This is not an isolated action, but part of a dangerous pattern over many months to destabilise Ukraine as a sovereign nation," NATO chief Anders Fogh Rasmussen said, describing the massing of Russian troops on the border as a "blatant violation" of Ukrainian sovereignty.
"We urge Russia to cease its illegal military actions, stop its support to armed separatists, and take immediate and verifiable steps towards de-escalation of this grave crisis."
Kiev and the West say Russian troops are spearheading a lightning counter-offensive that has seen rebels seize swathes of southeastern territory from government forces, dramatically turning the tide in the near five-month conflict.
Russian President Vladimir Putin has repeatedly denied Moscow is fuelling the rebellion or having any troops on the ground in the former Soviet state.
And on Friday, he demanded the Ukrainian government hold "substantial" talks with the separatists who took up arms against Kiev in April, describing the conflict as a "colossal tragedy".
- 20,000 troops massed -
NATO said Thursday Russia had sent at least 1,000 troops to fight alongside the rebels, along with air defence systems, artillery, tanks and armoured vehicles, and had massed 20,000 troops near the border.
And in a move certain to anger Kiev's former masters in Moscow, Rasmussen said NATO was willing to entertain Ukrainian membership after the government said it was taking steps to join.
The fresh rebel offensive has raised fears the Kremlin could be seeking to create a corridor between Russia and the Black Sea peninsula of Crimea which Moscow annexed in March.
Mariupol, a strategic government-held port on the Azov Sea south of the main insurgent bastion of Donetsk, was bracing for a possible onslaught after rebels seized several villages nearby.
Residents could be seen driving north with buses crammed full of people displaying signs with "children" written on them, in the hope they would not be fired on.
Some of those standing their ground were digging trenches or bringing in food and other supplies.
- Poroshenko a 'partner' -
The surge in fighting -- which the UN says has now killed almost 2,600 people -- came just days after Putin held talks with Ukraine's President Petro Poroshenko.
The talks failed to achieve any breakthrough but Putin on Friday described Poroshenko as a "partner" with whom he could hold a dialogue.
Germany warned the crisis was spiralling "out of control", as EU foreign ministers met ahead of a summit on Saturday where leaders may draw up further punitive measures against Moscow.
In a phone call with Putin, European Commission head Jose Manuel Barroso voiced his condemnation of Russia's "significant incursions" and urged him to change course.
The United States and the European Union have already imposed a series of sanctions on Moscow over the worst standoff between Russia and the West since the Cold War.
"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," US President Barack Obama said Thursday.
"This ongoing Russian incursion into Ukraine will only bring more costs and consequences for Russia."
The threat of new sanctions sent the ruble to a record low, while the Ukrainian currency, which plunged to all-time lows this week, gained ground as the IMF on Friday approved the release of another $1.4 billion aid tranche.
Putin again dismissed the West's concerns and defiantly described the insurgents as defenders of New Russia, a Tsarist-era term for Moscow's former imperial holdings in the region that the strongman has revived since annexing Crimea.
He praised rebel successes in halting Kiev's advances in the counter-offensive in the southeast.
Kiev said Thursday that Russian soldiers had seized Novoazovsk, once a quiet seaside town not far from the Russian border, and a string of villages east of Mariupol, while government troops are also battling for survival in Ilovaysk.
Top rebel leader Alexander Zakharchenko -- who has said Russian troops were in Ukraine "on holiday" -- said his men would be willing to let the troops withdraw if they give up their weapons after Putin called for a humanitarian corridor to help the besieged Ukrainian forces.
Putin said Friday he and Poroshenko had agreed on a new Russian aid delivery to stricken areas of the east, after Moscow angered Kiev with a unilateral convoy sent across the border last week.
On Friday, AFP journalists saw rebels patrolling Novoazovsk, apparently with their eyes on an advance towards Mariupol just 25 kilometres away.
"We came here to stay long. Do not believe the rumours that we are leaving. Our goal is to advance," one sign in the town reads.
UN chief Ban Ki-moon said the international community had to redouble its efforts to resolve the crisis, and that it was vital elections in Ukraine go ahead as planned in October.
"Lives are at stake. Peace in Ukraine means peace in the region and beyond," he said.