International nerves were jangling Saturday over the situation in the ex-Soviet republic, where sporadic fighting between pro-Kremlin rebels and Ukrainian security forces flared this week.

Russian warplanes violated Ukraine's airspace several times on Thursday and Friday, the Pentagon said.

Russia has also begun new drills on the border, where it has tens of thousands of troops massed.

A Western diplomat warned: "We no longer exclude a Russian military intervention in Ukraine in the coming days."

Ukraine's prime minister, Arseniy Yatsenyuk, on Saturday cut short a trip to Rome after seeing Pope Francis, skipping a Sunday canonization ceremony for popes John Paul II and John XXIII "because of the situation," his spokeswoman told AFP.

The diplomatic source noted that Russia's UN envoy, Vitaly Churkin, "has been recalled urgently to Moscow" for consultations.

On the ground in east Ukraine, Kiev's Western-backed government is waging an offensive against pro-Moscow rebels holding a string of towns.

A 13-member OSCE military observer team sent into Ukraine to monitor an April 17 Geneva accord designed to de-escalate the situation were being held hostage by rebels in the flashpoint town 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 a barricade around the building where the team from the Organization for Security and Cooperation in Europe was being held had been greatly reinforced with sandbags and a machine-gun.

Washington and Europe called for the immediate release of the OSCE team, which included three members of the German military, a Swede, a driver and an interpreter.

State Department spokeswoman Jen Psaki insisted there was a "strong connection between Russia and these separatists."

Kiev has accused Moscow — which it sees as controlling the rebels — of seeking to trigger a "third world war" and urged Russian troops to withdraw from the border.

The G7 nations said in a joint statement they 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 U.S. administration official said.

The Group of Seven consists of the United States, Britain, Canada, France, Germany, Italy and Japan. EU foreign ministers are also to meet soon to discuss the issue.

The United States and the European Union have already targeted Russian President Vladimir 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 of sanctions could target "individuals with influence on the Russian economy, such as energy and banking".

US Deputy National Security Advisor Ben Rhodes, speaking to reporters aboard Air Force One en route to Malaysia with President Barack Obama, spoke of "a spectrum of sanctions" that "allows us to escalate further" if the situation deteriorates.

Obama on Friday said that new sanctions against Russia were "ready to go" but had signaled they would not target key areas of the Russian economy such as the mining, energy and the financial sectors.

U.S. officials have said those measures would only be considered if Russia sent its regular forces across the border into eastern Ukraine.

Tensions have been heightened within Ukraine, with the military pursuing a new offensive against the rebels.

Slavyansk is under siege. Several locals and insurgents there told AFP a roadblock on the town's outskirts came under fire overnight but no-one was hurt. The rebels there have vowed they will never surrender.

The insurgents in the east have conducted their own attacks. On Friday, they blew up an army helicopter with a rocket-propelled grenade in the town of Kramatorsk, wounding the pilot.

Ukraine's Deputy Foreign Minister Danylo Lubkivsky told reporters at the United Nations that his country would exercise restraint in its operations against pro-Russian separatists.

"The anti-terrorist operation is ongoing, but we are guided by one major idea: we would like to avoid any victims or casualties," he said. 

Russian Foreign Minister Sergei Lavrov claimed Kiev's offensive was part of a US plot to "seize" Ukraine for its own "geopolitical ambitions and not the interests of the Ukrainian people."

The White House in turn said that Moscow could "still choose a peaceful resolution to the crisis" by implementing the Geneva deal, which calls for "illegal armed groups" to lay down their weapons and end their occupation of public buildings.

With the threat of sanctions hanging over Russia's already shaky economy, ratings agency Standard and Poor's on Friday downgraded its credit rating to one notch above junk status.

Russia's central bank reacted by raising its key interest rate.

Secretary of State John Kerry has warned that Russia could be making "an expensive mistake" in Ukraine.

While Obama has ruled out sending U.S. or NATO forces into Ukraine, Washington has begun deploying 600 America troops to bolster NATO's defenses in nearby eastern European states.

France also said it was sending four fighter jets to join NATO air patrols over the Baltic states.