The European Union is giving Russia a one-week ultimatum to scale back its intervention in Ukraine or face additional economic sanctions.
EU summit chairman Herman Van Rompuy said early Sunday that the bloc's 28 leaders tasked its executive body to "urgently undertake preparatory work for consideration within a week."
He says "everybody is fully aware that we have to act quickly."
Still, in apparent fear of an economic backlash, EU leaders meeting in Brussels shied away from immediately imposing tougher sanctions. Russia is the EU's No. 3 trading partner and one of its biggest oil and gas suppliers.
"Sanctions are not an end in themselves," but are a way to discourage Russia from further destabilizing its neighbor, EU Commission President Jose Manuel Barroso said before an EU leaders' summit. "Russia should not underestimate the European Union's will and resolve to stand by its principles and values."
Russia has repeatedly denied claims it is supporting rebels in Ukraine's east with weapons and expertise, despite NATO estimates that 1,000 Russian soldiers are in Ukraine.
"The opening of new fronts and the use of Russian regular forces (on Ukrainian soil) is not acceptable and represents a grave transgression," said Barroso, who provided no specifics on the sanctions being considered.
"No one's interest is served by new wars on our continent," he added.
Nearly 2,600 people have died in clashes between Ukrainian armed forces and Russian-backed rebels since April, according to a U.N. report.
Ukrainian forces facing strong resistance from pro-Russian separatists were abandoning one city and pulling back from two others on Saturday as Ukrainian President Petro Poroshenko — who was set to meet with EU leaders later Saturday — called for a strong EU response to the "military aggression and terror" his country is facing.
"Thousand(s) of the foreign troops and hundreds of the foreign tanks are now on the territory of Ukraine," Poroshenko said at a joint press conference with Barroso. "There is a very high risk not only for peace and stability for Ukraine but for the whole peace and stability of Europe."
The United States and the EU have so far imposed sanctions against dozens of Russian officials, several companies and the country's financial industry. Moscow has retaliated by banning food imports.
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In the town of Ilovaysk, about 15 miles east of the rebel stronghold of Donetsk, Ukrainian Col. Andriy Lysenko, a spokesman for the country's national security council, said troops were withdrawing.
"We are surrendering this city," he said, adding military units had also been ordered to retreat from Novosvitlivka and Khryashchuvate, two towns on the main road between the Russian border and Luhansk, another rebel stronghold.
"Our task now is to evacuate our military with the least possible losses in order to regroup."
Meanwhile, the Ukrainian military said Saturday that one of its fighter jets — a Su-25 — was shot down Friday over the eastern part of the country by a missile from a Russian missile launcher. The pilot ejected and was uninjured, the military said in a statement.
The developments come after NATO, in a blunt statement Friday, condemned Russian military action in Ukraine, saying its troops have "illegally crossed the border" as part of a "dangerous pattern over many months" to destabilize its neighbor.
NATO Secretary-General Anders Fogh Rasmussen, speaking after a meeting of the NATO-Ukraine commission, charged that Russian forces were directly engaged in military operations inside Ukraine; continuing to supply separatists with tanks, armored vehicles, artillery and rocket launchers; and had fired on Ukraine from both Russian territory and within Ukraine itself.
"This is a blatant violation of Ukraine's sovereignty and territorial integrity," Rasmussen said. "It defies all diplomatic efforts for a peaceful solution."
Contributing: The Associated Press