KIEV (AFP) – Tension reached almost boiling point Friday as Ukraine said  it had destroyed part of a Russian military convoy that crossed onto its territory.

Russia claimed the trucks carried aid for beleaguered rebel-held cities, but Ukraine believed the trucks could be a trojan horse,  funnelling arms to the area.

Ukrainian President Petro Poroshenko told British Prime Minister David Cameron that government artillery had destroyed a “considerable part” of a small military convoy that entered the country, the presidency said in a statement.

Ukrainian President Petro Poroshenko

Putin: Russia’s leader

Fears that the border clash could spill into all-out war between Kiev and Moscow sent major share markets tumbling across Europe and the United States.

The European Union demanded that Russia “put an immediate stop to any form of border hostilities, in particular to the flow of arms, military advisers and armed personnel into the conflict region, and to withdraw its forces from the border.”

French President Francois Hollande called on Russia to respect Ukraine’s territorial integrity and for both sides to try to de-escalate the “very high tensions,” while Britain summoned Moscow’s ambassador to “clarify” the situation and a spokesman for Cameron said Russia needs to show “a willingness to find a peaceful solution to the conflict”.

NATO accused Russia of active involvement in the “destabilisation” of eastern Ukraine, where pro-Kremlin separatists have been fighting against Kiev for four months.

Moscow has rejected the charges it sent in the military hardware, its latest denial of Western accusations that it is funnelling weapons to the pro-Russia separatists who launched an insurgency against Kiev in April.

But NATO chief Anders Fogh Rasmussen backed reports of the “Russian incursion” after British media said it had seen the convoy of some 20 vehicles cross the border.

“It just confirms the fact that we see a continued flow of weapons and fighters from Russia into the eastern Ukraine,” he said.

“It is a clear demonstration of continued Russian involvement in the destabilisation of eastern Ukraine.”

As the fallout snowballed, Ukraine’s foreign minister announced he will meet his Russian counterpart Sergei Lavrov in Berlin on Sunday for talks alongside the top diplomats from France and Germany.

“Be it a square table or a round one, we need to talk,” minister Pavlo Klimkin wrote on Twitter.

Meanwhile Ukraine said it was forging on with an offensive that has sent rebel forces reeling, retaking three small towns overnight.

Top rebel military chief Igor Strelkov and another key commander announced Thursday they were quitting after Ukraine’s military said it had completely surrounded Lugansk, cutting all links to the border with Russia.

An AFP journalist in the main rebel-held city of Donetsk in the industrial heartland of eastern Ukraine heard sporadic shelling from a suburb and saw rebels driving howitzer cannons into the city centre.

The death toll continues to climb, with mortar fire in Donetsk killing 11 civilians over the past 24 hours, local authorities said. Five soldiers were also killed in fighting over the same period.

As the Russian aid sat at the border, Ukrainian officials said their own aid convoys — some 75 lorries with 800 tonnes of aid — had arrived at a government-held town some 100 kilometres north of Lugansk.