An EU diplomat familiar with the talks told EUobserver “the new [legal] criteria would move us toward stage three, something like stage 2.7. No concrete names were discussed, but it’s less about listing top people in the Kremlin, and more about Russian companies”.

The EU’s so-called “stage two” sanctions have so far targeted more than 70 individuals and two ex-Ukrainian firms taken over by Russia when it annexed Crimea.

The “stage three” sanctions, which have already been drafted by the European Commission, are designed to target whole sectors of the Russian economy, such as high-tech industries or banking.

The EU diplomat noted that Tuesday’s accord gives leaders’ more leeway in Wednesday’s deliberations. But he added: “The summit is dynamic and unpredictable, so it’s hard to say what this might mean in practice”.

A second EU source said: “The ambassadors’ discussions did not lead to any concrete plan. Everything is still up in the air for the PMs and heads of state to discuss”.

The EU last week added 11 names of pro-Russia rebel chiefs to its sanctions register.

But the US and Ukraine are pushing for it to go further.

A Ukrainian source told this website that Kiev would like to see the EU trigger a “light” version of stage three to show Moscow that Europe will move forward on a “stage-by-stage” basis unless it stops “destabilising” Ukraine.

The debate comes after Russia failed to fulfill four conditions - including freeing of hostages by rebels, and handing back control of border checkpoints - issued at the last EU summit in late June.

But France and Germany are still hoping to launch peace talks between Kiev and rebel chiefs under the stewardship of the OSCE, a European multilateral club.

For its part, the US has said it is willing to impose new sanctions unilaterally if the EU summit does not bear fruit.

A State Department spokeswoman, Jen Psaki, told press in Washington on Tuesday: “We feel if [Russian] president Putin cares deeply about his people, about the economy in his own country, it [the threat of more Western sanctions] should continue to impact his decision making”.

Putin himself on Tuesday sent a telegram to incoming European Commission chief Jean-Claude Juncker saying EU-Russian relations are being “seriously tested”.

He also attended a summit in Fortaleza, Brazil, with the leaders of Brazil, China, India, and South Africa - the so-called Brics.

The bloc launched a new Development Bank and Currency Reserve Pool with a capital of $100 billion each to counter what they see as the Western-controlled World Bank and International Monetary Fund.

The Brics’ neutrality on Ukraine has been touted by Putin as a counter to US and EU claims that he is isolated on the world stage.

"Recently Russia has been exposed to a sanction attack by the US and its allies”, he told Russia’s Itar-Tass news agency on Tuesday.

“Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the US and their allies".