U.S. and NATO officials say there are now about 20,000 Russian troops massed just east of Ukraine's border. The U.S. also says Russia continues to train and equip separatists battling Ukraine's government.
Russia has repeatedly rejected Ukrainian and Western claims of a military buildup on the border.
"The longer that Russia perpetuates and instigates this tension and the possibility of escalating their activity, it's going to get worse. And we have to be prepared for that," Hagel said.
Among the scenarios that worry some in NATO is Putin potentially sending Russian troops into eastern Ukraine in the guise of a "peacekeeping" force. That concern has deepened as the Russian-supported separatists appear to lose the initiative against Ukrainian government forces.
Hagel also said that Russia's provocative actions are forcing the U.S. and its allies to take a close look at how NATO is structured and prepared for such military crises and other challenges of the future.
U.S. officials have talked about the need to set up a more robust and ready NATO military response force. That is likely to be one of the subjects discussed at the NATO summit in September. Sir Adrian Bradshaw, the British army general who is NATO's No. 2 officer, said last week the alliance needs a more responsive quick-reaction force that could be deployed in the event Moscow makes aggressive military threats against a NATO nation.
Breedlove in June told reporters that NATO needs "to have a much more responsive force to address this new threat that we see." He said the allies will consider where the force should be positioned and whether it should move in and out on a rotational basis or remain in the region as long as needed.
He said he has recommended that NATO consider prepositioning military equipment in the region, but no final decisions have been made yet.
AP National Security Writer Robert Burns contributed to this story.