Ukrainian forces are falling back from their positions, in the face of an advance by pro-Russian rebels.
According to officials, over 700 Ukrainian soldiers have been captured and the army was forced to withdraw from Luhansk airport.
Russia continued to deny assisting the rebels, with Foreign Minister Sergei Lavrov calling for an immediate ceasefire.
Ukraine's defence minister said on his Facebook page, they were now fighting a "great war" with Russia.
"A great war has arrived at our doorstep - the likes of which Europe has not seen since World War Two," he said.
"Unfortunately, the losses in such a war will be measured not in the hundreds but thousands and tens of thousands."
Lavrov said he wanted talks to focus on "agreeing an immediate and unconditional ceasefire", insisting that there would be "no military intervention" from Russia.
President Putin meanwhile reacted to talks of further sanctions by the European Union, calling on the EU to show "common sense" and not to engage in mutually destructive sanctions.
German Chancellor Angela Merkel said that further sanctions against Russia could adversely affect Germany’s economy, but added that "accepting Russia's behaviour [was] not an option".
See related articles:
EU warns Russia of more sanctions if troops do not withdraw from Ukraine (31 August 2014)
US broadens scope of sanctions on Russia (14 Aug 2014)
Russia bans food imports from EU, US, Australia and Canada (07 Aug 2014)
Sweeping EU sanctions against Russia (31 Jul 2014)
EU widens sanctions on Russia, targets economy (29 Jul 2014)
EU to impose new sanctions on Russia (22 Jul 2014)
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