Stop Script execution from CEP panel.

Maybe not the best approach, but the way I managed to make it work is by creating stop.txt file next to the main extendscript file and when user runs functions from UI, it writes with fs and path modules to the txt file '0' which means 'don't stop', the through extendscript I added checkers that read the file and throw error if the stop.txt contains '1', error is taken care by trycatch
stop button in UI writes to stop.txt '1' which means 'stop'

You can make your function run async with "app.scheduleTask();"  and during each loop check the global object if the execution should continue, for example:

if ($.["myscriptname"].continueRun === false) {
  // break the loop here and cancel task
  app.cancelTask(); //
}

I don't think this is possible, unfortunately.
As you suggested, the only option is probably to do the loop in CEP and split the job into many small jsx executions. That's also what I do in Still Exporter, for example, to show a status update in the CEP panel while the images are exported.