Petro Poroshenko said before a summit of the EU's 28 leaders that a strong response was needed to the "military aggression and terror" facing his country.
"Thousands of the foreign troops and hundreds of the foreign tanks are now on the territory of Ukraine," Poroshenko told reporters in English. "There is a very high risk not only for peace and stability for Ukraine, but for the whole peace and stability of Europe."
On the ground, fighting continued. The office of the Donetsk mayor reported in a statement on Saturday that at least two people died in an artillery attack on one of Donetsk's neighborhoods. Shelling was reported elsewhere in the city, but there was no immediate word on casualties.
French President Francois Hollande and Swedish Prime Minister Fredrik Reinfeldt said upon their arrival for the summit in Brussels that the leaders will ask the EU's executive arm to finalize the legal fine print of new sanctions.
Lithuanian leader Dalia Grybauskaite added Russia's stance on Ukraine, which seeks closer ties with the EU, amounts to a direct confrontation that requires stronger sanctions.
"Russia is practically in the war against Europe," she said in English.
European Commission President Jose Manuel Barroso said "sanctions are not an end in themselves," but a means to dissuade Russia from further destabilizing Ukraine.
"Russia should not underestimate the European Union's will and resolve to stand by its principles and values," he told reporters, adding that the escalation seen over the past week can't go unpunished.
"The opening of new fronts and the use of Russian regular forces (on Ukrainian soil) is not acceptable and represents a grave transgression," Barroso added.
NATO estimates that at least 1,000 Russian soldiers are in Ukraine even though Russia denies any military involvement in the fighting that has so far claimed 2,600 lives, according to U.N. figures.
Conceding ground in the face of a reinvigorated rebel offensive, Ukraine said Saturday that it was abandoning a city where its forces have been surrounded by rebels for days. Government forces were also pulling back from another it had claimed to have taken control of two weeks earlier.
The statements by Col. Andriy Lysenko, a spokesman for the national security council, indicate that Ukrainian forces face increasingly strong resistance from Russian-backed separatist rebels just weeks after racking up significant gains and forcing rebels out of much of the territory they had held.
Poroshenko said Ukraine would welcome an EU decision to help with military equipment and further intelligence-sharing.
Barroso provided no specifics about which sanctions the heads of state and government might adopt to inflict more economic pain to nudge Russia toward a political solution. "No one's interest is served by new wars on our continent," Barroso said.
The U.S. 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.
Grybauskaite said the EU should impose a full arms embargo, including the canceling of already agreed contracts. France has so far staunchly opposed that proposal because it has a $1.6 billion contract to build Mistral helicopter carriers for Russia.
New EU sanctions have to be agreed unanimously - a requirement that has in the past blocked or softened decisions since some nations fear the economic fallout. Russia is the EU's No. 3 trading partner and one of its biggest oil and gas suppliers.
Barroso said that the EU - a bloc encompassing 500 million people and stretching from Lisbon to the border with Ukraine - stands ready to grant Kiev further financial assistance if needed. The bloc will also organize a donors' conference to help rebuild the country's east at the end of the year, he added.
Ukrainian forces had been surrounded by rebels in the town of Ilovaysk, avout 20 kilometers (15 miles) east of the largest rebel-held city of Donetsk for days.
"We are surrendering this city," Ukraine's Lysenko told reporters. "Our task now is to evacuate our military with the least possible losses in order to regroup."
Lysenko said that regular units of the military had been ordered to retreat from Novosvitlivka and Khryashchuvate, two towns on the main road between the Russian border and Luhansk, the second-largest rebel-held city. Ukraine had claimed control of Novosvitlivka earlier in August.
Separately, Ukrainian forces said one of their Su-25 fighter jets was shot down Friday over eastern Ukraine by a missile from a Russian missile launcher. The pilot ejected and was uninjured, the military said in a brief statement.