AFP — Western powers led by US President Barack Obama warned Friday that Russia faced fresh sanctions over Ukraine as Kiev accused Moscow of seeking to trigger a “third world war.”

The threat came amid heightened tensions on the ground as the Ukrainian military launched a new offensive to besiege the rebel-held city of Slavyansk and insurgents blew up an army helicopter with a rocket-propelled grenade.

Following a conference call with Obama, plus the leaders of Britain, France and Italy, German Chancellor Angela Merkel announced that EU ministers would meet soon to agree to new measures targeting Russia.

“Given the absence of progress, we have to think about — and not just think about, but act on — the option of new sanctions,” Merkel said.

“For this purpose, European Union foreign ministers will meet as soon as possible.”

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.

Western leaders have repeatedly threatened to hit Russia with measures aimed at the wider economy.

“The heads of state and government have called for a rapid reaction by the G7 and raised the prospect of new sanctions by the international community against Russia,” the French presidency said in a statement.

The leaders called on Russia to stop its “intimidation” of Ukraine and stressed that a presidential poll scheduled for May 25 was “essential” to stabilize the country.

‘Third World War’

Meanwhile, Ukrainian authorities ratcheted up military operations against pro-Russian rebels in the east and their Cold War-style rhetoric.

“The world hasn’t forgotten the Second World War and Russia wants to start a third world war,” Ukrainian Prime Minister Arseniy Yatsenyuk said.

“Russia’s support for the terrorists in Ukraine constitutes an international crime and we call on the international community to unite against the Russian aggression.”

Kiev announced that its forces were now seeking to “blockade” rebels inside Slavyansk, in a bid to prevent militant reinforcements arriving and to spare civilian casualties.

An AFP journalist saw heavily armed troops setting up a checkpoint some 15 kilometres (10 miles) from the town of 110,000 people.

On Thursday, Ukrainian armoured vehicles and commandos had made a brief but dramatic incursion into Slavyansk, killing a 22-year-old insurgent.

But the rebels in Slavyansk were defiant Friday, vowing: “We will not surrender the town.”

One rebel manning a roadblock in the town warned that if the army returned “we will defeat them and we won’t take any prisoners”.

Only 16 kilometres to the south, at an air base close to the city of Kramatorsk, a rocket-propelled grenade blew up a Ukrainian military helicopter sitting on the tarmac, officials in Kiev said.

The pilot escaped but was wounded. Smoke spewed into the sky over the rebel-held town.

Russia responded to Ukraine’s military offensive by ordering its troops massed on the border to launch new drills.

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”.

In a sign of the increasingly desperate efforts to prevent the conflict spiralling out of control, German Foreign Minister Frank-Walter Steinmeier warned: “There is not much time to end this madness.”

‘We shall win’

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 in a bid to offset “growing inflationary risks”.

Oil prices, which rocketed up on the tensions Thursday, fell back slightly on Friday. Stock markets dropped on nervousness over the crisis.

“Both sides keep drawing red lines… Traders are worried that someone ends up stepping over one of them,” said a London analyst, Jonathan Sudario of Capital Spreads.

US Secretary of State John Kerry had warned earlier of the economic consequences of sanctions if Moscow failed to de-escalate the crisis.

“Let me be clear: if Russia continues in this direction, it will not just be a grave mistake, it will be an expensive mistake,” he said.

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.

Some 150 US troops landed in Latvia on Friday as part of this force.

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

Yulia Tymoshenko, a former prime minister who is a frontrunner for the May 25 election, publicly warned Putin that if he starts a war, it “will be the end of your regime”.

“We shall win and your people will answer for all the crimes,” she said on her official website.

Russia’s previous response to the threat of sanctions has been to warn that they would trigger a tit-for-tat cycle that no one would win.

Some EU states fear that further sanctions could hamper gas supplies from Russia and undermine a fragile European economic recovery, although Russia remains reliant on gas sales with its economy tipped to plunge into recession this year.

Russia saw capital outflows in the first quarter of 2014 double from a year earlier to $50.6 billion (37 billion euros) over the uncertainty created by the Ukraine crisis and fears of greater sanctions.