Ukraine’s defence ministry release footage of government forces making their way towards Kramatorsk as part of an ongoing operation against insurgency in the east.
The move came as pro-Russian separatists released seven OSCE military observers and five Ukrainian assistants who had been held for more than a week.
On Saturday, news reports claimed fighting broke out in Kramatorsk, about 10 miles south of Slaviansk, the epicentre of the unrest.
A government spokesman said the operation to combat pro-Russia militias who have seized government buildings in 10 eastern cities was progressing well.
“Slaviansk city is absolutely blocked (by Ukrainian forces), the circle around it is becoming smaller,” Serhiy Pashynskyi, the acting head of the presidential administration of Ukraine said.
“I’m sure the confirmed operation is going according to plan and it will be finished with complete victory over the terrorists, freed of hostages and returning Kramatorsk and Slaviansk to normal civil life,” Mr Pashynskyi added.
On Saturday videos were posted online (below) showing Ukrainian troops in armoured personnel carriers drive through the streets of Kramatorsk. Smoke was seen pouring from burned out busses on the streets after Ukrainian troops attempted to recapture the town.
Tensions in Ukraine have heightened sharply after at least 42 people died in clashes between government supporters and opponents in the Black Sea port of Odessa on Friday that ended in a deadly blaze in a trade union building.
Police said four people were killed, at least three shot dead, and dozens wounded in unprecedented running battles between people backing Kiev and pro-Russian activists.
The clashes ended with separatists holed up in a the building that caught fire. Television footage showed petrol bombs exploding against its walls. At least 37 people died in the blaze.
Violence also spread from the eastern separatist heartland to an area far from the Russian frontier, raising the prospect of unrest sweeping more broadly across a country.
A group of military observers who were seized last week by pro-Russian separatists in Slaviansk were also released on Saturday.
“We can now confirm the release of the military observers,” said a spokeswoman for the OSCE, under whose auspices the military verification officers led by German defence ministry staff were in Ukraine.
Ukraine’s security service said on Saturday illegal military groups from Moldova’s breakaway region of Transdniestria and Russian groups worked together to foment unrest in the southern port city of Odessa.
“The unrest, which occurred … in Odessa and led to clashes and many casualties, was due to foreign interference,” a military spokeswoman said.
She said former top officials, once part of ousted Ukrainian President Viktor Yanukovych’s inner circle, had financed “saboteurs” to foment the unrest, blaming Serhiy Arbuzov and Oleksander Klymenko, who were now “hiding in a neighbouring country”.
The Kremlin, which has massed tens of thousands of soldiers on the eastern Ukrainian frontier and proclaims the right to invade to protect Russian speakers, said the provisional government in Kiev and its western backers were responsible.
Russian President Vladimir Putin’s spokesman said that both Kiev authorities and their backers in the west were directly responsible for bloodshed in Ukraine’s southern city of Odessa, Russian new agencies reported.
“Kiev and its western sponsors are practically provoking the bloodshed and bear direct responsibility for it,” RIA Novosti quoted spokesman Dmitry Peskov as telling reporters.
Mr Peskov also said Friday’s violence made the idea of holding presidential elections in Ukraine later this month “absurd.”