UKRAINIAN President Petro Poroshenko has accused Russia of "direct and open aggression" which he said had radically changed the battlefield balance as Kiev's forces suffered a further reverse in the war with pro-Moscow separatists.
Ukraine's military said its troops had been ordered to pull back from a vital airport in the east of the country, near the city of Luhansk, where they had been battling a Russian tank battalion.
Mr Poroshenko said there would be high-level personnel changes in the Ukrainian armed forces, whose troops fled a new rebel advance in the south which Kiev's Western allies say has been backed up by Russian armoured columns.
Russian President Vladimir Putin, who called on Sunday for immediate negotiations on the "statehood" of southern and eastern Ukraine, blamed Kiev's leadership for refusing to enter into direct political talks with the separatists.
Mr Putin said he also hoped "common sense" would prevail in the West over the possibility of imposing additional economic sanctions, despite Moscow's denials that it is helping the rebels.
German Chancellor Angela Merkel stressed accepting Russia's behaviour was not an option.
Until last week Ukraine had appeared close to crushing the four-month rebellion in the east, which erupted after a pro-Moscow president was forced out of power by popular protests. But then the rebels opened a new front to the south on the coast of the Sea of Azov, pushing towards the city of Mariupol.
Mr Poroshenko has repeated Kiev's belief that Russian forces are helping the rebels to turn the tide of the war.
In a speech at a military academy in Kiev, he said: "Direct and open aggression has been launched against Ukraine from a neighbouring state. This has changed the situation in the zone of conflict in a radical way."
But Mr Putin repeated his call for talks, saying: "The current Kiev leadership does not want to carry out a substantive political dialogue with the east of its country."
Mr Putin also said the separatists were trying to force Ukrainian troops from their current positions where they were firing on civilian targets.
In the face of tougher sanctions being imposed on Moscow by the West, Russian Foreign Minister Sergei Lavrov yesterday hinted at further retaliation.
He said: "We will first of all start from our own interests - protect our economy, protect our social sphere, protect our businesses and at the same time draw conclusions from the actions of our partners."
Mr Lavrov said there would be no military intervention from Russia in Ukraine. Moscow denies the presence of Russian tanks and troops there, despite what Nato and Western governments have said is overwhelming evidence to the contrary.
The conflict has moved onto the sea for the first time after separatists said they had fired on a Ukrainian vessel in the Azov Sea using land-based artillery.
A Ukrainian border guard official said a coastguard cutter had been sunk and two sailors were missing.
Concern is mounting in Kiev over the fate of several hundred Ukrainian troops encircled for days in Ilovaysk, east of the region's biggest town of Donetsk.
The UN said last week the death toll in the five-month-old conflict was nearly 2,600.