German Chancellor Angela Merkel and Russian President Vladimir Putin agree the Ukraine situation "has a tendency towards degradation" and have urged an intensification of peace efforts, Putin's spokesman Dmitry Peskov said on Sunday.
The two leaders met briefly before the World Cup final in Brazil. They have been in regular telephone contact over the Ukraine crisis, with Merkel urging Putin to use his influence over separatists in eastern Ukraine to help bring about an end to fighting.
"Both Putin and Merkel stressed the necessity to urgently resume the work of a contact group on Ukraine, possibly in the format of a video conference. It is their common opinion that, in order for the contact group to resume its work, a ceasefire needs to be declared as soon as possible," Peskov said.
Russia threatened Ukraine on Sunday with "irreversible consequences" after a man was killed by a shell fired across the border from Ukraine, describing the incident in warlike terms as aggression that must be met with a response.
Although both sides have reported cross-border shootings in the past, the incident appears to be the first time Moscow has reported fatalities on its side of the border in the three-month conflict which has killed hundreds of people in Ukraine.
Kiev called the accusation its forces had fired across the border "total nonsense" and suggested the attack could have been the work of rebels trying to provoke Moscow to intervene on their behalf. The rebels denied they were responsible.
Inside Ukraine, where combat has intensified dramatically since a rebel missile attack that killed dozens of government troops on Friday, local officials said 18 people were killed in shooting incidents in the two main rebel-held cities.
Kiev said it had bombarded a convoy of 100 armoured vehicles and trucks that had crossed into Ukraine carrying in rebel fighters from Russia. It also said seven of its troops had been killed in attacks.
Moscow's bellicose response to the cross-border shelling raises the renewed prospect of overt Russian intervention, after weeks in which President Vladimir Putin had appeared intent on disengaging, pulling back tens of thousands of troops he had massed at the frontier.
Russia sent Ukraine a note of protest describing the incident as "an aggressive act by the Ukrainian side against sovereign Russian territory and the citizens of the Russian Federation," the Russian Foreign Ministry said in a statement warning of "irreversible consequences".
"This represents a qualitative escalation of the danger to our citizens, now even on our own territory. Of course this naturally cannot pass without a response," Russian Deputy Foreign Minister Grigory Karasin told Rossiya-24 state TV.
Russia's Investigative Committee said a shell had landed in the yard of a house in a small town on the Russian side of the frontier, killing a man and wounding a woman. The Russian town is called Donetsk, sharing the name of the Ukrainian city of 1 million people that the rebels have declared capital of an independent "people's republic".
REUTERS