Even after the downing of Malaysia Airlines MH17 flight, in which 298 people died, "Russia continues to transfer weapons across the border and to provide practical support to the separatists."

"Leaders agreed that the international community should therefore impose further costs on Russia and specifically that ambassadors from across the EU should agree a strong package of sectoral sanctions as swiftly as possible," Downing Street said.

EU ambassadors on Monday agreed to extend the sanctions list to the inner circle of Russian President Vladimir Putin and were set to meet again on Tuesday to agree on economic sanctions.

Any new EU sanctions will come into force within 24 hours of a deal being reached between the ambassadors.

With the more reluctant German and Italian leaders onboard, it is unlikely that ambassadors will fail to reach an agreement Tuesday or Wednesday at latest.

Otherwise, a special EU summit of all leaders would have to be called again - a prospect that nobody wants as it would show a divided Europe.

According to an EU source, one of the sticking points for the Tuesday discussion remains whether the arms ban should also apply to old contracts retroactively or just new defence contracts.

Eastern member states would like to keep the existing contracts because of their Soviet-era airplanes and military equipments which need spare parts from Russia. France is also reluctant to scrap a €1.2 billion sale of two Mistral warships.

Another issue is the economic impact of sanctions if Russia retaliates with import bans on European products, as well as clear language on what could trigger the end of the sanctions regime.

A spokeswoman for Chancellor Angela Merkel said the German government is demanding a "substantial package of EU measures against Russia", including a weapons embargo.

Apart from weapons exports, the EU is likely to impose trade bans on sensitive technology, including in shale oil and arctic exploration - however no gas exploration technology. So-called dual use items, which can serve both civilian and military purposes, are also to be included on the sanctions list.

As for Russian banks and firms, they will be slapped with restrictions to EU and US capital markets, which will mean they will have trouble raising money abroad and see their stock value decrease.

The sanctions should "put pressure on Russia not to further destabilise Ukraine and instead to find a diplomatic solution to the crisis," the German chancellery said in a statement.