Britain and the United States have renewed calls for Russia to defuse the crisis in eastern Ukraine ahead of a meeting of European leaders.
In a telephone call, David Cameron and US President Barack Obama underlined demands for Moscow to take significant steps towards peace or face further sanctions.
Talks between Russia and Ukraine over a ceasefire have stalled in recent weeks and Moscow yesterday warned of possible "irreversible consequences" after claiming a Ukrainian shell killed one person and seriously injured two others.
A Downing Street spokeswoman said: "Both leaders agreed that Russia still needed to take several steps towards de-escalation, including support for a ceasefire; the release of all hostages; preventing the transit of weapons and fighters across the border; support for an OSCE (Organisation for Security and Co-operation in Europe) monitoring mission on the border and engaging in a roadmap for talks that could lead to a peaceful resolution to the conflict.
"In the absence of such efforts, then the US and EU must be willing to impose further costs on Russia, as agreed at the G7 summit and the last European Council. The Prime Minister made clear that this would be his position at the European Council on Wednesday."
The Prime Minister and President Obama also discussed the recent presidential elections in Afghanistan, faltering negotiations in Vienna over Iran's nuclear enrichment programme and the crisis in Iraq.
"They discussed the situation in Iraq and the ongoing threat posed by Isis," the spokeswoman added.
"They agreed on the urgent need to establish an inclusive government in Iraq, which acts in a way that unites people across the country rather than divides them."
The leaders did not discuss the crisis in Gaza.