Ukraine situation deteriorating: Merkel

German chancellor Angela Merkel plans to make an appearance in Rio for the 2014 FIFA World Cup final. (Getty)

Russian President Vladimir Putin and German Chancellor Angela Merkel have held "constructive" talks about how to resolve the situation in Ukraine.

Russian President Vladimir Putin and German Chancellor Angela Merkel have agreed that the situation in Ukraine, where Kiev is continuing an offensive against pro-Russian separatists in the east, is "deteriorating", the Kremlin says.

"Putin and Merkel had a constructive, very thorough dialogue during which they discussed in detail possible options for resolving the situation in Ukraine," Kremlin spokesman Dmitri Peskov told the Russian news agency Ria Novosti.

"The two leaders agreed that unfortunately the situation is deteriorating."

They also "stressed the need for the urgent resumption of a contact group on Ukraine, possibly via videoconference," Peskov said.

"According to (Putin and Merkel), for this to happen there needs to be a statement as soon as possible concerning a ceasefire, a prisoner exchange, and the return of (international) monitors" in eastern Ukraine, he added.

The talks between the two leaders came as fresh clashes between pro-Russian separatists and Ukrainian forces killed 18 civilians and forced Kiev's new Western-backed President Petro Poroshenko to cancel a crucial meeting with Putin at the World Cup in Brazil.

Over three months of fighting in Ukraine's restive east have claimed more than 550 lives so far.

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