European Union leaders have given Russia three days to change policy on Ukraine or face the prospect of tougher sanctions.
In a statement released on Friday, the 28 EU leaders said Russia had to take further steps - among them clear backing for the Ukraine government's peace plan - by Monday, June 30.
They also demanded that Ukrainian rebels agree to ceasefire verification arrangements, return border checkpoints to Ukraine, free hostages and launch serious talks on implementing a peace plan put forward by Petro Pososhenko, Ukraine's president.
"If we don't see any steps forward on any of the points, then we are also prepared to take drastic measures," German Chancellor Angela Merkel said after the Brussels meeting.
Diplomats said the new sanctions could target new people and companies with asset freezes as early as next week.
The warning came as Poroshenko, who was also in Brussels to sign a historic association agreement with the EU, decided to extend a ceasefire agreement with the rebels that was set to end at 1900 GMT on Friday.
Poroshenko extended the ceasefire by 72 hours.
He said the EU accord, known as the Deep and Comprehensive Free Trade Agreement, marked a "historic day" that offered his former Soviet country a fresh start after years of political instability.
"Over the last months, Ukraine paid the highest possible price to make her European dreams come true," Poroshenko told EU leaders.
Georgia and Moldova also signed similar deals.
Ukraine will use "the opportunity to modernise," he said, stressing the importance of peace and security for its future and that of the region. The accord was a "demonstration of EU solidarity", Poroshenko said.
Russia immediately said "grave consequences" would follow as the Kremlin sees the deal threatening its influence on the country.
Viktor Yanukovich, Ukraine's former president, turned his back on the EU agreement last November in favour of closer ties with Russia, prompting months of street protests that eventually led to his fleeing the country.
Soon after he fled, Russia annexed Ukraine's Crimea region, drawing outrage and sanctions from the United States and EU.
The accord is part of the Association Agreement, which also includes a political cooperation deal, that was signed by Arseniy Yatsenyuk, Ukraine's acting prime minister, in March.
|Ukraine signs trade deal with EU
"This is a great day for Europe ... the European Union stands by your side today more than ever before," Herman Van Rompuy, the head of the European Council, said at the ceremony with Poroshenko and prime ministers of Georgia and Moldova.
At a summit of EU leaders in Brussels, Irakli Garibashvili, Georgia's prime minister, said: "The people of Georgia have chosen democracy, reforms and the irreversible path of European integration."
The policy was launched by Poland and Sweden in 2009, shortly after many of the former Soviet states of central Europe joined the EU, so as also to offer their neighbours further to the east closer ties.
The accords offer a cooperative framework covering a mixture of economic and political areas such as energy, visas and foreign policy and favour the independence of the judiciary and boosting civil society norms through the rule of law and eradicating corruption.
The linked trade deals aim at giving the three countries improved access to the EU's single market, the biggest in the world with 500 million potential customers.