Germany and France have led efforts to implement a peace deal agreed in Minsk but there has been no end to the conflict between Ukrainian forces and pro-Russian separatists, which has killed more than 10,000 people since it erupted in 2014.
Successive rounds of EU and US sanctions have been imposed on Russia over the conflict and its annexation of the Crimean Peninsula in March 2014, with the most recent batch to expire in January.
Ms Merkel and Francois Hollande say they want to extend the measures due to “very sluggish” process on the ceasefire deal.
“It will be necessary to extend the sanctions against Russia again - although we would have wished for better progress in the implementation of this process,” Ms Merkel said during a conference on Tuesday.
Mr Hollande agreed, adding: “We must continue to apply the terms of the Minsk agreement and when they are not carried out, we must continue with sanctions.”
EU leaders are due to discuss extending sanctions, which include restricting access to international financing and curbs on defence and energy cooperation with Russia, on Thursday.
The Russian government has denied stoking the unrest in the face of evidence by Nato and monitors claiming to show its troops and weapons in rebel-controlled areas of the country.
Hacked emails seen by the BBC appear to show Vladislav Surkov, one of Vladimir Putin’s closest aides, detailing budgets for pro-Russian “republics” in eastern Ukraine, as well as a plan for Moscow to provide fuel for the separatists during shortages.
International investigators also concluded that rebels shot down a Malaysia Airlines passenger plane using a missile system supplied from Russia, killing all 298 people on board.
Peace talks ended last month without a breakthrough, with Russia and the Ukrainian government exchanging accusations for breaking temporary truces and violating the Minsk deal.
The Kremlin has additionally retaliated with a wave of counter-sanctions against the EU.
Russia's deputy foreign minister, Grigory Karasin, labelled the comments by Ms Merkel and Mr Hollande “cynical and counterproductive”, Interfax news agency reported.
“Russia is doing its utmost to restart the process of implementing the Minsk accords, which is currently stalled by the Kiev authorities,” he added.
Mr Putin phoned Ms Merkel to warn of a threat to the gas supplies Russia sends to Europe via Ukraine on Tuesday.
The Russian President told his counterpart Ukraine has been reluctant to sign a contract on Russian gas supplies for the coming winter and that it “threatens transit to Europe", his office said.
A pipeline through Ukraine is a major conduit for gas exports to Europe and past disputes between Russia and Ukraine have led to cutoffs, including a 2009 standoff that caused serious disruptions in winter supplies.
The Kiev government signed a memorandum of understanding on energy with the EU in November, looking to increase cooperation and facilitate market integration in the future.
The deal also made progress towards a visa-free travel regime for Ukrainians visiting EU nations.
Meanwhile, the Ukrainian government has been using its ties with Europe and Nato in efforts to modernise its infrastructure and military, while distancing itself from Russia.
The US-based Institute for the Study of War said the launch of numerous missiles near Crimea forced “a strong Russian reaction” last month, prompting Ukraine to shift the tests further inland.
Additional reporting by agencies
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