President Vladimir Putin's claims to desire a peaceful solution to the crisis in Ukraine are "not credible" while tanks roll across the border, David Cameron has said.
The Prime Minister said he was "extremely concerned" about reports of major troop movements from Russia into south eastern Ukraine and warned the activity must stop immediately.
The crisis in Ukraine will be at the top of the agenda of next week's Nato summit in Wales, where Mr Cameron will meet with other alliance members to discuss collective security at Europe's eastern border.
Shots have been fired and around 1,000 Russian troops have crossed the border into Ukraine. Nato estimates another 20,000 Russian troops are stationed on their side of the border.
In a statement, Mr Cameron said: " I'm extremely concerned by mounting evidence that Russian troops have made large-scale incursions into South Eastern Ukraine, completely disregarding the sovereignty of a neighbour.
"The international community has already warned Russia that such provocative actions would be completely unacceptable and illegal.
"President Putin has said that Russia is willing to find a peaceful solution to the conflict but this is not credible when Russia is supporting pro-Russian separatists in Ukraine with arms and troops. It is simply not enough to engage in talks in Minsk, while Russian tanks continue to roll over the border into Ukraine. Such activity must cease immediately.
"We urge Russia to pursue a different path and to find a political solution to this crisis. If Russia does not, then she should be in no doubt that there will be further consequences."
Earlier, Ukraine's president Petro Poroshenko said: "Russian forces have entered Ukraine."
Mr Poroshenko summoned his national security council as the strategic south-eastern town of Novoazovsk appeared firmly under the control of separatists and their Russian backers.
The moves open a new front in the war in eastern Ukraine between the separatists and his government in Kiev.
Speaking at Nato headquarters, Brigadier General Nico Tak, Dutch commander of Nato's crisis operations centre, said the ultimate aim of Russia was to stave off defeat for the separatists and turn eastern Ukraine into a "frozen conflict" that would destabilise the country "indefinitely".
Shadow foreign secretary Douglas Alexander said: "The reported incursion by Russian armed forces into eastern Ukraine is clearly a provocative step.
"The international community has repeatedly called on President Putin to change course and urged him to pursue a political resolution to this crisis. Yet he continues to inflame tensions in eastern Ukraine, instead of easing them.
" As EU leaders meet again this weekend in Brussels, they must be prepared to consider what further co-ordinated economic and diplomatic measures - including possible tier three sanctions directed towards the Russian economy - can now be taken to ensure that Russia feels both the costs and consequences of its continued aggression towards Ukraine.
"The prospects of escalation remain very concerning, but continued Russian aggression must be met with a robust, co-ordinated and united international response aimed at altering the calculus of risk in President Putin's decision making over Russian actions in eastern Ukraine."
Following a call between Mr Cameron and Italian prime minister Matteo Renzi, a Downing Street spokesman said: "They ... discussed the extremely worrying situation in Eastern Ukraine and agreed that the European Council must address this.
"T hey reiterated the need for de-escalation and for Russia to stop fuelling the military conflict and instead to seek a political solution to the crisis.
"They agreed that the European Council should also address the situation in Iraq and that the upcoming Nato Summit in Wales will be a vital forum for addressing both this and the conflict in Ukraine."
European leaders are due to meet at a summit on Saturday.
Speaking at a meeting of the United Nations Security Council, UK ambassador Lyall Grant said: "The United Kingdom is deeply alarmed by the escalation of Russian military intervention in eastern Ukraine over the past 72 hours.
"Formed units of the armed forces of the Russian Federation are now directly engaged in fighting inside Ukraine against the armed forces of Ukraine ... t his incursion is a clear violation of sovereign Ukrainian territory by the Russian Federation.
"Russian denials of this reality fit into the pattern of Russia's dishonest approach to Ukraine from the very beginning of this crisis.
"It is simply not credible for Russia and its proxies in Donetsk and Luhansk to keep claiming that these serving members of the Russian armed forces are in Ukraine 'by accident' or 'on holiday'. Nor is it credible for Russia to continue claiming to the whole world, including to the Russian people, that Russian soldiers are not present on Ukrainian territory. The increasing number of Russian casualties and captured soldiers gives the lie to that.
"President Putin has said that Russia is willing to find a peaceful solution to the conflict. These words have little value against this clear pattern of escalating Russian military involvement in eastern Ukraine.
"Violating international law and the UN Charter in such a brazen manner is not compatible with Russia's responsibilities as a permanent member of the Security Council. We again call on Russia to immediately withdraw its military forces from Ukraine, stop its flow of weapons to the separatists, and instead help to secure a political solution to this crisis."