* Ukrainian president says situation "extraordinarily difficult"
* Rebels advance in southeast, capture coastal town
* NATO source says more than 1,000 troops in Ukraine
* Merkel says EU to consider more sanctions vs Russia (Adds new Poroshenko quotes, Cameron, Merkel, report of 100 Russian troops killed on Aug. 13)
By Richard Balmforth and Pavel Polityuk
KIEV, Aug 28 (Reuters) - Ukraine's president said on Thursday that Russian troops had entered his country in support of pro-Moscow rebels who captured a key coastal town, sharply escalating a five-month-old separatist war.
Petro Poroshenko told a meeting of security chiefs that the situation was "extraordinarily difficult ... but controllable" after Russian-backed rebels seized the town of Novoazovsk in the south-east of the former Soviet republic.
Earlier he said he had cancelled a visit to Turkey because of the "rapidly deteriorating situation" in the eastern Donetsk region, "as Russian troops have actually been brought into Ukraine".
Russia's defence ministry again denied the presence of its soldiers in Ukraine, using language redolent of the Cold War, even as two human rights advisers to President Vladimir Putin said more than 100 Russian troops had died there in a single attack on Aug. 13.
"We have noticed the launch of this informational 'canard' and are obliged to disappoint its overseas authors and their few apologists in Russia," a defence ministry official, General-Major Igor Konashenkov, told Interfax news agency. "The information contained in this material bears no relation to reality."
But Western governments appeared to be running out of patience with Moscow's denials.
Referring to talks that Putin held with Poroshenko just two days ago, British Prime Minister David Cameron said: "It is simply not enough to engage in talks in Minsk, while Russian tanks continue to roll over the border into Ukraine. Such activity must cease immediately."
Poland's foreign minister said Russian "aggression" had created the most serious security crisis in Europe for decades, and a top NATO official said Russia had significantly escalated its "military interference" in Ukraine in the past two weeks.
"We assess well over 1,000 Russian troops are now operating inside Ukraine," said Dutch Brigadier-General Nico Tak, head of NATO's crisis management centre. "They are supporting separatists (and) fighting with them."
Global markets fell on news of the worsening crisis, which has prompted the United States and European Union to impose sanctions on Moscow and led both Russia and NATO to step up military exercises.
German Chancellor Angela Merkel said an EU summit on Sunday would discuss the possibility of further sanctions.
Rebel advances this week have opened a new front in the conflict just as Ukraine's army appeared to have gained the upper hand, virtually encircling the separatists in their main strongholds of Donetsk and Luhansk.
Ukraine's security and defence council said Novoazovsk and other parts of southeast Ukraine had fallen under the control of Russian forces, and a counter-offensive by Russian troops and separatist units was continuing.
It said Ukrainian government forces had withdrawn from Novoazovsk "to save their lives" and were now reinforcing defences in the port of Mariupol further west, which a rebel leader said was the separatists' next objective.
"Today we reached the Sea of Azov, the shore, and the process of liberating our land, which is temporarily occupied by the Ukrainian authorities, will keep going further and further,"
Alexander Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, told Reuters in an interview.
He said there were about 3,000 Russian volunteers serving in the rebel ranks.
Ukrainian Prime Minister Arseny Yatseniuk appealed to the United States, European Union and G7 countries "to freeze Russian assets and finances until Russia withdraws armed forces, equipment and agents".
Anton Gerashchenko, an adviser to Ukrainian Interior Minister Arsen Avakov, said on Facebook: "The invasion of Putin's regular Russian army of Ukraine is now an established fact!"
Despite Russia's denials, a member of Putin's advisory council on human rights, Ella Polyakova, told Reuters she believed Russia was carrying out an invasion of Ukraine.
"When masses of people, under commanders' orders, on tanks, APCs and with the use of heavy weapons, (are) on the territory of another country, cross the border, I consider this an invasion," Polyakova told Reuters.
Polyakova and Sergei Krivenko, another member of the council, which has no legal powers and an uneasy relationship with the Kremlin, said more than 100 Russian soldiers were killed in Ukraine in a single incident on Aug. 13, basing their information on eyewitnesses and relatives of the dead.
They said the men were in a column of trucks filled with ammunition, which was hit by a sustained volley of Grad missiles.
"A column of Russian soldiers was attacked by Grad rockets and more than 100 people died. It all happened in the city of Snizhnye in Donetsk province," Krivenko told Reuters.
In southern Russia on Thursday, a Reuters reporter saw a column of armoured vehicles and dust-covered troops, one of them with an injured face, about 3 km (2 miles) from the border with the part of Ukraine that Kiev says is occupied by Russian troops.
The column was driving east, away from the border, across open countryside near the village of Krasnodarovka, in Russia's Rostov region.
None of the men or vehicles had standard military identification marks, but the reporter saw a Mi-8 helicopter with a red star insignia -- consistent with Russian military markings -- land next to a nearby military first-aid tent.
Asked if he was with the Russian military, a man in camouflage fatigues without any identifying insignia who was in the area of the tent, said only: "We are patriots."
The U.S. ambassador to Kiev, Geoffrey Pyatt, tweeted: "Russian supplied tanks, armored vehicles, artillery and multiple rocket launchers have been insufficient to defeat Ukraine' armed forces. So now an increasing number of Russian troops are intervening directly in fighting on Ukrainian territory.
"Russia has also sent its newest air defense systems including the SA-22 into eastern Ukraine & is now directly involved in the fighting," he said.
Fighting in the east erupted in April, a month after Russia annexed Ukraine's Crimean peninsula in response to the toppling of a pro-Moscow president in Kiev.
A United Nations report this week said more than 2,200 people have been killed, not including the 298 who died when a Malaysian airliner was shot down over rebel-held territory in July. (Additional reporting by Maria Tsvetkova, Anton Zverev, Gabriela Baczynska, Vladimir Soldatkin and Thomas Grove, Adrian Croft, Lina Kushch, Andreas Rinke and Alessandra Prentice; Writing by Mark Trevelyan; Editing by Will Waterman)
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