SLAVYANSK, Ukraine: Leading world powers agreed to slap fresh sanctions on Moscow over the Ukraine crisis as soon as Monday, as tensions mounted amid fears of an imminent Russian invasion.
As the West sought to ratchet up the diplomatic and economic pressure on the Kremlin, the situation on the ground in eastern Ukraine threatened to escalate, with pro-Russian rebels kidnapping an international team of OSCE observers and accusing them of being NATO spies.
And Ukrainian Prime Minister Arseniy Yatsenyuk said Russia violated his country's airspace seven times overnight with an aim "to provoke Ukraine to start a war". Moscow denied any transgression by its warplanes.
Yatsenyuk cut short a visit to Vatican City as fears grew that the tens of thousands of Russian troops conducting military drills on the border could soon start an invasion.
A Western diplomat warned: "We no longer exclude a Russian military intervention in Ukraine in the coming days."
The diplomatic source noted that Russia's UN envoy, Vitaly Churkin, "has been recalled urgently to Moscow" for consultations.
Meanwhile, international efforts continued to secure the release of a 13-member mission from the Organisation for Security and Cooperation in Europe held hostage by pro-Russian militants in the flashpoint city of Slavyansk.
The chief of the insurgents' self-styled "Republic of Donetsk", Denis Pushilin, accused them of being " NATO spies" and said they would only be released in a prisoner swap for militants detained by Ukrainian forces.
An AFP journalist in Slavyansk said rebels had fortified the barricades around the security services building where they were being held with sandbags and a machine-gun.
As indignant Western powers demanded their immediate release, Russia's envoy to the OSCE said Moscow would "take all possible steps in this case".
"We believe that these people should be released as soon as possible," Andrei Kelin said.
Russian's foreign ministry also said Moscow was "taking measures" to resolve the situation but blamed the Ukrainian authorities for the hostage crisis.
The OSCE observers were sent to Ukraine to monitor an April 17 accord signed in Geneva between Russia, Ukraine, the United States and the European Union that was meant to de-escalate the crisis in the ex-Soviet republic.
"They were invited by the Ukrainian authorities" and their safety "rests fully with the receiving side," the foreign ministry in Moscow said.
Speaking to reporters in Rome, Yatsenyuk said the detention was "unbelievable and unacceptable".
"This is another proof and evidence that these so-called peaceful protesters with Russian ideas are terrorists," he said.
Ukraine's own secret services said one of those detained "urgently" needed medical help.
The hostages were being held in "inhuman conditions" and were likely to be used as "a human shield effectively terrorising the whole international community," said the Kiev authorities.
As the West and Russia traded barbs amid the worst crisis in relations since the end of the Cold War, the Group of Seven rich countries agreed on the need for further sanctions on the government of President Vladimir Putin.
In a joint statement, the G7, consisting of the United States, Britain, France, Japan, Canada, Germany and Italy, said it would "move swiftly to impose additional sanctions on Russia".
"These sanctions will be coordinated and complementary, but not necessarily identical. US sanctions could come as early as Monday," a senior US administration official said.
The United States and the European Union have already targeted Putin's inner circle with visa and asset freezes and imposed sanctions on a key Russian bank.
A senior White House official said the next round could target "individuals with influence on the Russian economy, such as energy and banking".
US Deputy National Security Advisor Ben Rhodes, speaking to reporters travelling to Malaysia with President Barack Obama, spoke of "a spectrum of sanctions" that "allows us to escalate further" if the situation deteriorates.
EU sources in Brussels said senior diplomats from the 28-member European bloc would also hold talks Monday to consider new sanctions.
An EU diplomat said a list adding 15 people to the 55 Russians and Ukrainians already blacklisted by the EU had already been approved in principle.
The crisis erupted after Russia refused to accept the legitimacy of Kiev's new pro-EU government, which came to power after four months of street protests forced the ouster of the Kremlin-backed president, Viktor Yanukovych.
Last month, Moscow annexed Ukraine's peninsula of Crimea after deploying troops, sparking international outrage.
While Obama has ruled out sending US or NATO forces into Ukraine, Washington has begun deploying 600 US troops to bolster NATO's defences in nearby eastern European states.
And Ukraine has stepped up its offensive against insurgents they claim are supported by Moscow, who have seized a string of towns in the east of the country.
Ukrainian army units are besieging Slavyansk with sporadic fighting at checkpoints.
Locals and insurgents told AFP a roadblock on the town's outskirts came under fire overnight but no-one was hurt.
The insurgents have also conducted their own operations. On Friday, they blew up an army helicopter on the ground with a rocket-propelled grenade, wounding the pilot.
Ukraine's Deputy Foreign Minister Danylo Lubkivsky told reporters at the United Nations his country would exercise restraint against pro-Russian separatists to "avoid any victims or casualties".
Russian Foreign Minister Sergei Lavrov has claimed the push against rebels was part of a US plot to "seize" Ukraine for its own "geopolitical ambitions".
But the White House has urged Moscow to "choose a peaceful resolution to the crisis" by implementing the Geneva deal, which calls for "illegal armed groups" to lay down weapons.
Moscow denied a reports that Obama and Putin were no longer talking, saying they remain in touch.
After meeting Pope Francis, Yatsenyuk, who warned Friday Moscow was trying to trigger a "third world war", asked Russia to pull back its troops.
"We urge Russia to leave us alone."