Russia could be facing a fresh wave of EU sanctions within a week after Vladimir Putin was warned tensions over Ukraine were reaching the “point of no return”.

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.

As both sides ramped up their language, Lithuanian president Dalia Grybauskaite insisted Russia was “practically in a state of war with Europe” with more than a thousand troops and heavy weaponry in eastern Ukraine.

Mr Cameron said the EU summit in Brussels had taken “important steps” and the European Commission would present firm proposals for tougher sanctions within a week.

“It is totally unacceptable that there are Russian soldiers on Ukrainian soil. We have now set out a timetable for further sanctions that could be … significant steps,” Mr Cameron said.

“It’s a deeply serious situation and we have to show real resolve, real resilience in demonstrating to Russia that if she carries on in this way the relationship we have between Europe and Russia, Britain and Russia, America and Russia will be radically different in the future.”

At a joint press conference with Ukranian president Petro Poroshenko in Brussels yesterday, outgoing EC president 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.”

Mr Poroshenko said his presence at the summit was an important demonstration of solidarity with his country and said he still hoped tensions could be eased, after meeting Mr Putin in Minsk earlier this week.

“The most important thing now is peace,” he said. “Today we are talking about the fate of Ukraine, tomorrow it could be for all Europe.”

Explaining his words later, Mr Barroso said he feared tit-for-tat sanctions would “make it impossible to re-establish the kind of relations that are in the interests of both the EU and Russia” – adding that no one wanted to return to Cold War style animosity.

Ms Grybauskaite, whose country used to be part of the Soviet Union, suggested EU states should be supplying Kiev with military equipment.

“It is the fact that Russia is in a war state against Ukraine,” she told reporters. “That means it is in a state of war against a country which would like to be closely integrated with the EU. Practically Russia is in a state of war against Europe.

“That means we need to help Ukraine to … defend its territory and its people and to help militarily, especially with the military materials to help Ukraine to defend itself because today Ukraine is fighting a war on behalf of all Europe.”

But UK government sources echoed Mr Poroshenko’s view that there was “no military solution” to the crisis. In their communique from the summit, the leaders stated that they were “ready to take significant further steps, in light of the evolution of the situation on the ground”.

“We request the commission to urgently undertake preparatory work … and present proposals for consideration within a week,” they said.

Mr Putin has denied that his forces are in Ukraine – and hardened his language by reminding critics that Russia has nuclear weapons.

The meeting of EU leaders was originally scheduled to decide a new European Council president and high representative. Polish prime minister Donald Tusk secured the former role, succeeding Herman van Rompuy, while Italian foreign minister Federica Mogherini is set to take over from Baroness Ashton as high representative.

Mr Cameron met new commission president Jean-Claude Junker – whose appointment he unsuccessfully tried to block – yesterday morning to try to persuade him to hand Britain’s nominee, Lord Hill of Oareford, a top economic portfolio.

The rest of the 28 commission posts are expected to be announced next month.

After Mr Cameron warned last week that extremism in Iraq and Syria posed a greater danger to Britain than al Qaida, EU leaders backed more co-ordinated action to track jihadists.

They urged the revival of measures to share passenger records – currently stalled in the European parliament.There will also be help for less developed countries to improve airport security and design in less developed countries.