Ukrainian President Petro Poroshenko said that EU leaders had agreed to prepare additional sanctions on Russia which would be conditional on the success of a peace plan proposed by him.
"Based on my proposals, which were supported by the majority of the member states, there are possible sanctions that would be implemented - sectoral sanctions of the third level," he told a news conference after meeting the EU leaders in Brussels.
"They will link to the success of the peace plan of the president of Ukraine."
Earlier European Commission President José Manuel Barroso said the EU was prepared to toughen sanctions against Russia over the Ukraine crisis but also that it wanted a political deal to end the confrontation.
At a news conference in Brussels Mr Barroso said: "We are ready to take very strong and clear measures but we are keeping our doors open to apolitical solution."
He described any tightening of sanctions as intended not to escalate the crisis but to push Moscow to negotiate and he stressed that the EU did not want confrontation - "it makes no sense to have ... a new Cold War" - and said that would be "detrimental to all of Europe".
Commission President Barroso noted that his staff already had a broad range of options to propose to member states.
Lithuanian President Dalia Grybauskaite also sharply warned Russia on her arrival at the summit, saying Russia was practically at war with Europe, urging tougher sanctions against Moscow.
Ms Grybauskaite said "Russia is at war against Ukraine and that is against a country which wants to be part of Europe. Russia is practically in war against Europe," as she arrived for an EU summit.
She added sanctions so far "were too general, not targeted enough...This was a big mistake."
Finnish Prime minister Alexander Stubb later urged fellow European Union leaders "to be very firm" in their response to reports of Russian troops fighting inside Ukraine.
"We'll probably discuss further sanctions," Mr Stubb said, adding these could target financial services, armaments, dual-use products and energy.
EU leaders appoint Polish PM as council president
European Union leaders have chosen Polish Prime Minister Donald Tusk as the new president of their council and Italian Foreign Minister Federica Mogherini as the bloc's new foreign policy chief, outgoing European Council President Herman Van Rompuy said.
"The European Council has elected PM Donald Tusk as the next President of the European Council & Euro Summits," Van Rompuy said on social media site Twitter.
Taoiseach Enda Kenny congratulated the Polish premier on his election, saying he had worked closely with Mr Tusk in the past, adding that he had no doubt that his "dedication, expertise and professionalism will serve us well."
The Taoiseach also pointed out "this is the most senior post in the EU to be filled by a candidate from a country that joined in 2004 and is a real proof of how the EU has transformed our continent."