President Putin has called for talks to discuss "statehood" for eastern Ukraine, Russian media report.
He said the issue needed to be discussed to ensure the interests of local people "are definitely upheld".
His comments came after the EU gave Russian a one-week ultimatum to reverse course in Ukraine or face sanctions.
Russia denies Western accusations that its forces have illegally crossed into eastern Ukraine to support separatists there.
Mr Putin said it was impossible to predict the end of crisis.
"It largely depends on the political will of current Ukrainian authorities," the Russian Itar Tass agency quoted him as saying.
"Russia cannot stand aside when people are being shot at almost at point blank," he added.
He dismissed the EU's threat of further sanctions, accusing the EU of "backing a coup d'etat" in Ukraine.
Pro-Russian rebels have made gains against Ukrainian troops in recent days in the eastern Donetsk and Luhansk regions.
Some 2,600 people have died in fighting.
The conflict in the east erupted in April following Russia's annexation of Ukraine's southern Crimea peninsula a month before.
Also on Sunday, Russian media reported that 10 Russian paratroopers returned home in exchange for 63 captured Ukrainian soldiers held by Russia.
Speaking after a summit in Brussels, European Council President Herman Van Rompuy said the EU "stands ready to take further significant steps in light of the evolution of the situation on the ground", adding that the EU was working urgently on further restrictive measures.
The EU and US have already imposed asset freezes and travel bans on many senior Russian officials and separatist leaders in eastern Ukraine.
Western sanctions also restrict loans for Russian state banks, block defence-related technology exports and certain oil industry exports to Russia.
Russia denies that its forces are backing the rebels, instead accusing Ukrainian forces of aggression and deliberately firing at civilians.
Several European leaders at the summit condemned Russia's actions and expressed support for further sanctions if necessary.
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Angel Merkel says EU leaders are united in avoiding a military solution to the Ukrainian crisis
But Finnish Prime Minister Alexander Stubb said the "jury is still out" on whether sanctions had worked, adding: "We need to find a ceasefire, a peace plan."
Federica Mogherini, named on Saturday as the EU's future foreign policy chief, said there could be no military solution to the crisis and that while sanctions were being worked on, the diplomatic process would need to continue.
Government forces have lost ground in recent fighting to pro-Russian rebels.
Western and Ukrainian officials say this offensive has been substantially helped by Russian regular troops, opening a new front. Russia denies the accusation.
War in eastern Ukraine: The human cost- At least 2,593 people killed since mid-April (not including 298 passengers and crew of Malaysian Airlines MH17, shot down in the area) - UN report on 29 August
- 951 civilians killed in Donetsk region alone, official regional authorities said - 20 August
- In some particularly dangerous places, such as Luhansk region, victims are said to have been buried informally, making accurate counts difficult
- Rebels (and some military sources) accuse the government of concealing true numbers
- 155,800 people have fled elsewhere in Ukraine while at least 188,000 have gone to Russia
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