Ukraine's president has warned of 'full scale war' as EU leaders last night threatened Russia with tough new sanctions.

They were meeting at a summit in Brussels, where they also ruled out military action in the country.

The Taoiseach, Enda Kenny, who was among the leaders attending the meeting, said sanctions against Moscow are intended to hurt 'Mega Wealthy Russians'.

EU leaders say plans for tougher measures against Moscow will be drawn up within a week.

Ukrainian President Petro Poroshenko said tanks had been used to "destroy virtually every house" in the town of Novosvitlivka.

There were now thousands of foreign troops and hundreds of foreign tanks inside Ukraine, he told a news conference in Brussels.

"There is a very high risk not only for peace and stability for Ukraine but for the whole peace and stability of Europe," he said.

After meeting his European counterparts, Mr Poroshenko warned that efforts to end violence with pro-Russian rebels were close to a "point of no return" and that failure could lead to "full-scale war".

European leaders have ordered officials to make urgent preparations for a toughening of measures, likely to target senior Kremlin figures as well as the defence, energy and financial sectors.

Outgoing EU Commission head Jose Manuel Barroso insisted it was not too late to find a political solution, but he added: "We are in a very serious, I would say, dramatic situation ... where we can reach the point of no return.

"If the escalation of the conflict continues, this point can come."

He added: "Russia should not underestimate the European Union's will and resolve to stand by its principles and values."

It comes after a mutual exchange of captured soldiers between Ukraine and Russia on Sunday.

A group of 10 Russian paratroopers and 63 Ukrainian soldiers were returned after "very difficult negotiations", according to the Russian RIA news agency.

Nato released images apparently showing Russian forces on the ground in eastern Ukraine.

Government sources said separatists are believed to have heavy weaponry supplied by President Vladimir Putin.

Included in the weaponry are 100 tanks and artillery pieces, anti-tank weapons and shoulder-mounted missile launchers, the sources said.

Russia has repeatedly dismissed accusations it has sent soldiers or equipment across the border.

President Barack Obama has said the satellite pictures made it "plain" that Russia had "deliberately and repeatedly violated the sovereignty and territorial integrity of Ukraine".