Ukraine has launched a military assault on the flashpoint town of Slavyansk, raising the stakes in the showdown with Russia, which has vowed "catastrophic consequences" if Kiev stepped up operations.
Insurgents shot down two army helicopters, killing two servicemen, including a pilot, as the army tightened its noose around the rebel-held town of 160,000 people.
The pre-dawn offensive drew a sharp response from Moscow, where a spokesman for President Vladimir Putin said it dealt a "final blow" to a deal clinched in Geneva in April meant to ease the crisis.
The raid marked a dramatic escalation in the crisis and jeopardised negotiations to release seven Organisation for Security and Co-operation in Europe (OSCE) inspectors being held by Slavyank's insurgents.
The Kremlin said it had an envoy in east Ukraine negotiating for their freedom.
A day earlier, Ukraine's interim president reintroduced conscription amid fears of an imminent Russian invasion.
Oleksandr Turchynov has also put his armed forces on "full-combat alert" in response to the estimated 40,000 Russian troops massed on the border.
He has admitted police are powerless to stop a growing insurgency in the eastern part of the country, where pro-Russian rebels have seized control of more than a dozen towns and cities.
As the crisis rapidly spirals into the worse East-West confrontation since the end of the Cold War, US President Barack Obama was due to discuss the tensions with German Chancellor Angela Merkel at the White House later on Friday.
In what they called an "anti-terrorist" operation, the Ukrainian forces had for days encircled Slavyansk to prevent the insurgents receiving reinforcements.
Russia's foreign ministry warned on Thursday that any effort by Kiev to intensify its military operation "against its own people" in the east could have "catastrophic consequences".
And Russian news agencies quoted Putin's spokesman Dmitry Peskov as saying that while Moscow was "making efforts to de-escalate and settle the conflict", Kiev had launched a "reprisal raid".
He said the raid was "essentially finishing off the last hope for the feasibility of the Geneva accord".
Russia's envoy to the OSCE, Andrei Kelin, said Moscow had urged the pan-European body to "take steps to stop this reprisal raid", according to the ITAR-TASS news agency.
Hopes had been raised in recent days that the seven OSCE hostages in Slavyansk - four Germans, a Dane, a Czech and a Pole - might soon be released but Ukraine has accused the rebels of wanting to use them as human shields.
The West and Kiev believe the chaos in eastern Ukraine is being sown by Moscow in a bid to destabilise the former Soviet republic ahead of planned presidential elections on May 25.
The Kremlin denies the charges, but has reserved the right to use troops to protect Russian speakers in eastern Ukraine, a region with deep cultural and historical ties to Moscow.
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