Ukrainian forces have suffered a series of setbacks, as pro-Russian rebels advance in the east of the country.Officials said nearly 700 soldiers had been taken prisoner since the rebel offensive began.
Earlier the military said government forces had been forced to withdraw from Luhansk airport, saying they had been attacked by a column of Russian tanks.
Ukraine's defence minister said it was now fighting a "great war" with Russia in which tens of thousands could die.
Valery Heletey said on his Facebook page that the rebels had been defeated and Russia had been forced to begin a full-scale invasion of the region with regular forces.
Vladimir Putin tells the BBC the Minsk talks are "a very important process""A great war has arrived at our doorstep - the likes of which Europe has not seen since World War Two," he said.
"Unfortunately, the losses in such a war will be measured not in the hundreds but thousands and tens of thousands."
Russia has repeatedly denied Ukrainian and Western accusations that it is providing troops and equipment to the rebels.
Meanwhile, Ukrainian and Russian officials are holding talks with separatist rebels and international monitors in Minsk.
Some 2,600 people have died in eastern Ukraine since fighting began in April.
The conflict broke out after Russia's annexation of Ukraine's southern Crimea peninsula in March.
In other developments:
- Nato Secretary General Anders Fogh Rasmussen announced a Readiness Action Plan in response to Russia's "aggressive behaviour", meaning a more visible Nato presence in Eastern Europe and to make Nato "fitter, faster and more flexible to adjust to all kinds of security challenges"
- President Putin urged the European Union to show "common sense" and not to engage in mutually destructive sanctions, in his first reaction to the threat of new sanctions over Ukraine
- UK Prime Minister David Cameron said Russia's relationship with the West would change "radically" unless it changes its stance on Ukraine
- German Chancellor Angela Merkel acknowledged that further sanctions against Russia could aversely affect her country's economy, but said "accepting Russia's behaviour [was] not an option"
- Russia's energy minister said Russia and Ukraine had agreed to hold talks on 6 September to resolve their dispute over gas supplies, adding that the EU had yet to confirm whether it would send a representative.
Nato Secretary-General Rasmussen: "We must face the reality that Russia does not consider Nato a partner"'Organised withdrawal' The rebels have been gaining ground on Ukrainian forces in recent days, in both the Luhansk and Donetsk regions, and further south around the port of Mariupol.
Ukrainian news agency UNIAN quoted a senior official as saying that as many as 680 soldiers had been captured in Donetsk region after the recent fighting.
Col-Gen Volodymyr Ruban, chairman of the Centre for Prisoner Exchange, said "about 80%" of them were captured around Ilovaysk, east of the city of Donetsk, where hundreds of Ukrainian troops have been cut off since the latest rebel advance began.
Ukraine's security council confirmed that its troops had withdrawn from Luhansk airport "in an organised manner".
Clashes are said to still be taking place near the airport of the city of Donetsk, with separatists claiming that two Ukrainian platoons have surrendered.
There were also reports of an attack on a Ukrainian patrol vessel in the Azov Sea on Sunday night.
The talks in Minsk started on Monday, involving the so-called Contact Group which includes representatives from the Organization for Security and Co-operation in Europe.
After several hours they were adjourned until Friday.
Rebel representatives appear to have softened their demand for full independence, telling Russian media they were seeking a "special status" for their regions within Ukraine which would leave them in charge of security and give them amnesty from prosecution.
The status would also "take into consideration the necessity of deepening economic integration with Russia", the rebels say.
Correspondents say what they are demanding would mean the de facto division of the country, as the Ukrainian government is set on closer economic ties to the EU.
Russian Foreign Minister Sergey Lavrov, meanwhile, said he was counting on the talks to focus on "agreeing an immediate and unconditional ceasefire".
He also insisted there would be "no military intervention" from Russia in Ukraine.
Last week's first direct talks between Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, did not lead to any major breakthrough.
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 on 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.