Updated Aug. 28, 2014 5:52 p.m. ET
Ukrainian President Petro Poroshenko said Russian forces had entered Ukraine and seized the coastal town of Novoazovsk, putting a diplomatic response to the crisis in doubt. Photo: Agence France-Presse/Getty Images
Ukraine on Thursday accused Russia of having invaded the country, dashing hopes of progress toward a diplomatic resolution and challenging the West to respond.
A senior official of the North Atlantic Treaty Organization said that more than 1,000 Russian troops were fighting alongside pro-Russian separatists in eastern Ukraine, by far the largest such force ever reported by the Western alliance. But he stopped short of calling it an invasion, saying it represented an "incursion" apparently aimed at preventing Kiev's forces from defeating the pro-Russia rebels, rather than a broader assault.
The U.S. State Department criticized what it called "a pattern of escalating aggression in Ukraine from the Russians and Russian-backed separatists." But spokeswoman Jen Psaki reiterated that the U.S. and its European allies were seeking diplomatic rather than military measures to pressure Russian President Vladimir Putin to pull back.
German Chancellor Angela Merkel said European leaders would discuss stepping up economic sanctions when they meet in Brussels this weekend.
Mr. Putin didn't address the crisis publicly on Thursday and a Kremlin account of his phone conversation with Italian Prime Minister Matteo Renzi didn't mention the alleged Russian incursion, saying only that both sides agreed on the need for a "quick political solution" to the crisis.
Mr. Renzi's office, however, said he expressed great concern and called the presence of Russian troops in Ukraine "an intolerable escalation…the consequences of which could be very serious."
Kiev said Russian forces have seized the coastal town of Novoazovsk and several villages near the border with Russia.
"Columns of heavy armor, a large quantity of arms, and troops of Russian regular army units crossed through a part of the border not under control," Ukraine's President Petro Poroshenko said before an emergency meeting with his security chiefs, according to a statement on his website.
But he called for Ukrainians to remain calm. "The situation is of course extraordinarily difficult…but it is controllable, controllable enough that we must not give in to panic," he said. "We are able to defend ourselves."
At the session, the National Security and Defense Council approved the reinstatement of a military draft starting this fall, though pledged not to send conscripts to the war zone. It also said it would seek the status of a special ally outside NATO from the U.S., although it wasn't clear if Washington or the other members would back that.
Ukraine's ambassador to the Organization for Security and Cooperation in Europe described the events as a "direct invasion of the Russian military."
His Russian counterpart, however, denied any Russian troops were in Ukraine, except for 10 soldiers Moscow says crossed by accident. "No Russian forces are crossing in any point the border of Ukraine," Andrey Kelin said. (Follow the latest updates on the crisis in Ukraine.)
However, separatist rebels in Ukraine said for the first time that Russian active-duty military members are fighting in Ukraine—although the rebel leader insisted the soldiers were in the country for short stints, while on vacation.
"I'll say openly that fighting among us are active military who prefer not to spend a vacation on the beach," Alexander Zakharchenko, prime minister of the self-declared Donetsk Peoples' Republic, said in an interview on Russian state television. "They are among us brothers who are fighting for their freedom."
The Russian benchmark Micex equity index fell 2% on the tensions, while the ruble weakened to the lowest level against the dollar in nearly six months.
Western leaders have for months said a Russian invasion of eastern Ukraine would prompt harsher economic sanctions and international isolation on Russia. But President Barack Obama has also made clear that the U.S. and its allies won't intervene militarily to stop Russian forces.
Kiev's military, underequipped and heavily reliant on poorly trained volunteer units, would be no match for a major force from Russia.
If threats of more Western sanctions failed to deter Moscow, Kiev would likely be forced to agree to a cease-fire that left the separatists—and their sponsors in Russia—in control of a substantial part of Ukraine. That would be a dramatic setback for Mr. Poroshenko's pro-Western government and a severe blow to Ukraine's already-shrinking economy, as well as a threat to his ambitions for closer ties with the European Union and U.S.
NATO said it would hold an emergency meeting on Friday at the request of Ukraine. NATO Brig. Gen. Nico Tak said earlier that Russia has more than 1,000 troops operating in Ukraine.
"NATO is currently using the term incursion," Gen. Tak said. "It is not up to NATO to define the Russian incursion. But the point is that it is extremely worrying."
NATO also released new satellite photos that it said showed Russian forces engaged in military operations on Ukrainian territory. The photos showed Russian self-propelled artillery units moving through the Ukrainian countryside and setting up firing positions in the area of Krasnodon, NATO said.
NATO says satellite images show Russian units moving in a convoy formation with self-propelled artillery in the area of Krasnodon, Ukraine. Agence France-Presse/Getty Images
This and other evidence shows "a severe escalation in the situation" over the past two weeks, Gen. Tak said. "It is clear that Russia is not willing to accept the defeat of the separatists," he said. "It will most likely do anything it takes to prevent such a defeat."
Western capitals have grown increasingly alarmed. Speaking before French ambassadors in Paris, President François Hollande said any incursion by Russian troops inside Ukraine would be "intolerable" and warned that Moscow would expose itself to a new round of sanctions if it didn't respect the sovereignty of its western neighbor.
"Russia cannot simultaneously aspire to be a world power in the 21st century and not play by the rules," the French president said.
But it is unclear how big an appetite European countries have for more sanctions on Russia, a major trading partner, with economies on the continent already slowing.
Ukrainian President Petro Poroshenko at Kiev's airport on Thursday. Zuma Press
The EU had hoped that diplomatic efforts, which led to a meeting in Minsk on Tuesday between Messrs. Poroshenko and Putin, would lead to a negotiated settlement. But the latest developments made that prospect seem remote, unless Kiev is forced to accept a cease-fire.
After falling back before the advance in the southeast, Ukrainian troops are now digging in near the strategically important port city of Mariupol, which had been one of the first Kiev reclaimed from rebels earlier this year. The Russian news agency Interfax cited pro-Russian rebels as saying they will be taking the city "in the coming days."
Ukraine's security council said the assault on Novoazovsk on Wednesday was preceded by missile fire from across the Russian border, followed by the incursion of "two columns of Russian military equipment."
The council said Russian forces had taken control of Novoazovsk and surrounding villages, as well as villages further north, toward Donetsk. It didn't provide proof for its claim of Russian involvement, however.
At the main roadblock on the road east from Mariupol, a few dozen pro-Kiev soldiers and volunteers armed with rifles stood at the post of concrete blocks with two armored vehicles. They were digging trenches, but several despaired at what they said was lack of support, with no artillery or tanks to bolster their defensive position.
"What can we do with rifles against tanks?," asked one bearded fighter in his 20s.
—Alan Cullison, Naftali Bendavid, Nicole Lundeen and David Gauthier-Villars contributed to this article.
Corrections & Amplifications
An earlier version of this article misspelled the given name of Jen Psaki, the State Department spokeswoman, as Jan. (Aug. 28, 2014)
Write to James Marson at james.marson@wsj.com and Gregory L. White at greg.white@wsj.com
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