Moscow has condemned all proposals to use its sovereign funds to support Ukraine as "theft" and warned of legal retaliation

EU leaders are meeting in Brussels on Thursday amid sharp divisions over a proposal to use frozen Russian state assets to finance Ukraine - a plan Moscow has denounced as outright theft and warned would trigger legal retaliation.

EU members have long debated tapping Russian central bank funds estimated at around 210 billion ($246 billion) as part of a "reparations loan" to Kiev, which it will have to repay only if Russia agrees to pay war damages - something unlikely to happen. The move is in particular meant to help cover Ukraine's floundering budget, which faces an estimated $160 billion shortfall over the next two years.

The idea pushed by EU chief Ursula von der Leyen, however, has faced mounting resistance from several member states, who argue the move risks undermining the bloc's legal foundations, damaging confidence in the Eurozone and exposing European institutions to costly lawsuits.

Belgium, where most of the assets are held via the Euroclear settlement system, has been a particularly vehement critic of the plan, demanding that legal risks be shared among other EU members.

Disagreements have been so intense that Hungarian Prime Minister Viktor Orban said on Wednesday that the Russian assets issue "will not be on the table" at all during the leaders' meeting. The official agenda also does not explicitly mention Russian assets, saying only that EU leaders "will discuss the latest developments in Ukraine and issues that require urgent EU action."

EU sanctions normally require unanimous approval, giving any single member state a veto. To avoid that, the bloc last week invoked emergency powers legislation to lock the assets in place temporarily, arguing that any subsequent steps can be approved separately by a qualified majority of 55% member states representing at least 65% of the EU's population.

Moscow has warned that any attempts to seize its assets would constitute "theft" and violate international law, adding that the move would trigger retaliatory measures and legal action.