Ukrainian President Petro Poroshenko has cancelled a visit to Turkey, citing "Russian troop deployments" in the east of the country.
His announcement came as pro-Russia rebels took the coast town of Novoazovsk and threatened the strategic port city of Mariupol.
Russia said no forces were crossing Ukraine's border "at any point".
At least 2,119 people have been killed since fighting erupted in April between Ukrainian forces and separatists.
The United Nations Security Council is due to hold an emergency meeting in New York on Thursday at 16:00 GMT to discuss the crisis.
The latest rebel successes mean a new front has opened in an area which has previously not been penetrated by the separatists.
Nato Brigadier General Niko Tak told the BBC that there had been a "significant escalation in the level and sophistication of Russia's military interference in Ukraine" over the past two weeks.
Pro-Russian rebels have been fighting Ukrainian forces in the city of Donetsk for months
"[Nato has] detected large quantities of advanced weapons, including air defence systems, artillery, tanks, and armoured personnel carriers being transferred to separatist forces in eastern Ukraine," he said.
"Russia is reinforcing and resupplying separatist forces in a blatant attempt to change the momentum of the fighting, which is currently favouring the Ukrainian military."
More than 1,000 Russian troops are reportedly operating inside Ukraine, both supporting the separatists and fighting on their side.
'Sharp aggravation'
On Thursday, Mr Poroshenko said he had called a meeting of the Ukrainian security council in light of the deteriorating situation.
"I have made a decision to cancel my working visit to the Republic of Turkey due to the sharp aggravation of the situation in Donetsk region... as Russian troops were actually brought into Ukraine," Mr Poroshenko said in a statement.
Meanwhile Prime Minister Arseny Yatsenyuk said Russia had "unleashed a war in Europe" and said the world should take "effective steps".
But Russia's envoy at the Organisation for Cooperation and Security in Europe (OSCE), Andrey Kelin, denied there were any Russian troops.
Government forces had made significant advances against the separatists in recent weeks, but these gains seem in doubt with rebels now operating in two distinct areas of Donetsk region.
Ukrainian officials have repeatedly said that Russia has been sending troops and equipment to the rebels, but Russia has denied arming or covertly supporting them.
Separatist leader Alexander Zakharchenko told Russian TV that 3-4,000 Russian citizens were fighting in their ranks.
He said many of the Russians were former service-people or current service personnel on leave, insisting that all were volunteers.
In other developments:
- An "increasing number of Russian troops" are involved in the fighting, the US ambassador to Ukraine, Geoffrey Pyatt, wrote on Twitter
- German Chancellor Angela Merkel demanded an explanation from Russia's President Vladimir Putin amid the reports of an incursion
- French President Francois Hollande said it would be "intolerable" if Russian troops were in Ukraine, and demanded that Russia stop sending aid to the rebels
- The OSCE is holding a special meeting in Vienna to discuss developments in Ukraine.
Ukrainian forces are being deployed to help defend the southern city of Mariupol
Shelling is continuing in Donetsk, hitting buildings including this school
Railway lines in eastern Ukraine have been destroyed in the fighting
Ukraine's security and defence council confirmed reports that Novoazovsk had been captured by the rebels, whom they described as "Russian troops".
It said it had withdrawn its forces to save lives, and that Ukrainian soldiers were now reinforcing Mariupol's defences.
A Ukrainian company commander, Vladimir Shilov, told Ukrainian TV that he had heard from sources inside the town that it was blocked by tanks and no-one was allowed to leave. Local officials had already fled to Mariupol, he added.
A spokesman for the rebels told Interfax news agency that Novoazovsk was under their control and they would soon "liberate" Mariupol.
Reports on Twitter suggested the rebels were already advancing towards Mariupol, and separatists said they had captured checkpoints to the west of the city.
The port has until now been peaceful and cut off from rebel positions.
Pro-Russian fighters have been trying for weeks to break out of an area further north in the Donetsk region where they are almost encircled.
Analysts say the separatists could also be seeking a land link between Russia and Crimea, which would give them control over the entire Sea of Azov.
Russia annexed the Black Sea peninsula of Crimea from Ukraine in March.
- At least 2,119 people had been killed and 5,043 wounded since mid-April, a UN report on 7 August said
- 951 civilians have been killed in Donetsk region alone, the official regional authorities said on 20 August
- Official casualty counts only record certified deaths while in some particularly dangerous parts of the war zone, such as Luhansk region, victims are said to have been buried informally, for instance in gardens
- Rebels (and some military sources) accuse the government of concealing the true numbers of soldiers killed
- 155,800 people have fled elsewhere in Ukraine while at least 188,000 have gone to Russia
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