KOSTYANTYNIVKA, Ukraine: The United States moved to impose fresh sanctions against Russia on Monday over the crisis in Ukraine, as pro-Kremlin gunmen seized another town in the east, further escalating tensions.
Speaking in the Philippines, US President Barack Obama said the sanctions would include export restrictions on high-tech defence goods in a bid to ratchet up pressure on Russian President Vladimir Putin, blamed for the worst East-West crisis since the Cold War.
Top EU officials were also meeting in Brussels to step up European sanctions on Russia as part of a coordinated global effort against Moscow.
On the ground in eastern Ukraine, tensions spiked further as gunmen stormed the town hall and police offices in Kostyantynivka, the latest in a string of insurgent assaults on towns in the region.
The pro-Russian mayor of Kharkiv was also left fighting for his life after unidentified gunmen shot him in the back.
In the flashpoint town of Slavyansk, rebels refused to release a group of international monitors from the OSCE after presenting them to the media as "prisoners of war" in what Germany said was a "repugnant" display.
Meanwhile, the threat of a full-scale invasion loomed large over the ex-Soviet country, with tens of thousands of Russian troops massed on the border and Ukraine's prime minister warning of efforts to start a "third world war".
On the last leg of a four-country Asia tour, Obama announced new steps to punish Russia for what the president has called "provocation" on Ukraine's border, where Moscow has conducted military operations.
He said Washington would unveil a list of "individuals and companies" that will be sanctioned to build pressure on Putin and Russia's recession-hit economy.
He added the measures would also focus on "high-tech defence exports to Russia" that he said were not appropriate given the parlous climate between Moscow and the West.
The sanctions are in response to Russia's perceived lack of action to implement an April 17 accord struck in Geneva to defuse the crisis. Obama has said Moscow has not "lifted a finger" to enact the deal.
The goal was not to "go after Mr Putin personally", Obama said but to "change his calculus" and "encourage him to walk the walk and not just talk the talk" in resolving the crisis diplomatically.
The Group of Seven (G7) top economies has vowed swift joint action and EU diplomats were expected to expand the bloc's sanctions against Moscow at a meeting later on Monday.
The West has already imposed visa and travel restrictions on key members of Putin's inner circle and slapped sanctions on a top bank.
But some fear that undermining Russia's economy could tip the world back into recession, just as it begins to recover from the eurozone debt crisis.
Reflecting these jitters, stocks in Japan closed nearly one percent lower and the yen -- seen as a safe haven against uncertainty -- gained in value.
On the ground in eastern Ukraine, the situation remained dangerous as gunmen wielding Kalashnikov rifles seized the town hall and police offices of Kostyantynivka, a town of some 80,000 people.
AFP reporters said militants were increasingly agitated at checkpoints and occupied buildings, especially in Slavyansk, which has become the epicentre of the crisis.
Regional authorities said a mutilated body had been found in Slavyansk but the victim could not be immediately identified.
In the nearby town of Kramatorsk, locals told AFP there had been gunfire near the airport and Ukrainian army officers warned reporters away from the scene.
Ukraine's pro-Western authorities are waging what they describe as an "anti-terrorist" operation in the region, including a siege of Slavyansk to prevent reinforcements reaching the pro-Russian militants.
Separately, intense negotiations were under way to secure the release of seven OSCE observers captured by rebels on Friday, whose detention has sparked international outrage.
Eight of the monitors from the Organisation for Security and Cooperation in Europe were presented to the media Sunday, in a news conference described as "repugnant" by Germany, which is leading the mission.
One man, a Swede, was later freed on medical grounds as he suffers from diabetes.
Four Germans, a Pole, a Dane and a Czech remain in detention and there is no indication on the fate of four Ukrainians who were accompanying the mission to assess the implementation of the Geneva deal.
A spokeswoman for local rebel leader Vyacheslav Ponomaryov told AFP the OSCE detainees were "in very good health" and that negotiations with the organisation were ongoing. Rebels were expected to hold another news conference later Monday.
The OSCE said it was to hold an emergency meeting Monday at its Vienna headquarters to discuss what the group's chairman, Swiss President Didier Burkhalter said was an "unacceptable" abduction.
The International Committee of the Red Cross told AFP it was trying to gain access to the detainees and urged all sides to treat captives "humanely".
The rebels are also holding three Ukrainian soldiers captured near Slavyansk. Russian television showed the men blindfolded, cuffed and bloodied, stripped to their undergarments.
The crisis has escalated at breathtaking pace since November when pro-Western protesters in Kiev began mass demonstrations against former Kremlin-backed president Viktor Yanukovych after he rejected an agreement to bring Ukraine closer to the European Union.
After four months of protests, which turned deadly as authorities tried to break them up, Yanukovych was forced from power.
In response, Moscow launched a blitz annexation of the peninsula of Crimea and stepped up troop movements on the border.
Kiev and the West accuse Russia of being behind the unrest in southeastern Ukraine, allegations Moscow has denied.
It has reserved the "right" to protect Russian speakers in the region, which has deep cultural and historical ties to Moscow.