Putin calls for independence talks

President Vladimir Putin has called for statehood to be considered for the east of the former Soviet state.

War monger ... Putin gestures while speaking at a youth camp near Lake Seliger. Picture: Mikhail Klimentyev/AP Source: AP

RUSSIAN President Vladimir Putin has sharply raised the stakes in the Ukraine conflict by calling for the first time for statehood to be considered for the restive east of the former Soviet state.

Putin's defiant remarks came on Sunday just hours after the European Union gave Moscow — which the bloc accuses of direct involvement in the insurgency — a week to change course or face new sanctions.

"We need to immediately begin substantive talks ... on questions of the political organisation of society and statehood in south-eastern Ukraine," the Russian leader was quoted by Russian news agencies as saying.

Moscow has previously only called for greater rights under a decentralised federal system to be accorded to the eastern regions of Ukraine, where predominantly Russian-speakers live.

But Putin has this week sparked renewed speculation that he may be seeking to create a statelet in southeast Ukraine, after he employed a loaded Tsarist-era name "Novorossiya" to refer to the region.

Putin's tough talk also comes as rebels turned the tide on advancing Ukrainian troops, by snatching a series of towns and trapping the army in some.

Restive east ... Ukrainian soldiers instruct local residents to seek refuge as shelling comes closer to the city of Mariupol in the village of Bezimenne, eastern Ukraine. Picture: Sergei Grits/AP Source: AP

Kiev has warned that it was on the brink of "full-scale war" with Moscow that Europe fears would put all of the continent at risk of conflict.

The European Union agreed to take "further significant steps" if Moscow did not rein in its support for the rebels, with new sanctions to be drawn up within a week.

Kiev said the invigorated rebel push of the past days has included substantial numbers of Russian regular army contingents who are now concentrating forces in big towns across the region.

"Terrorists and Russian soldiers continue to concentrate personnel and equipment in regional centres," said security spokesman Andriy Lysenko.

A ragtag mix of volunteer battalions and local residents were meanwhile bracing for a desperate defence of Mariupol, a strategic port city on the Azov Sea coast.

"We can hold them off, but for how long? We don't have the strength to beat them," said Panther, a tattooed fighter with the Azov battalion, said to be one of the most radical nationalist groups fighting in the area.

Pro-Russia ... Alexander Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, told Russian media on Saturday that the insurgents were "preparing a second large-scale offensive." Picture: Dimitar Dilkoff/AFP Source: AFP

NATO last week accused Moscow of sending at least 1,000 troops to fight alongside the rebels, and presented satellite imagery showing artillery, tanks and armoured vehicles crossing the border.

German Chancellor Angela Merkel said the new sanctions would build on existing measures against Russia which mainly cover financial services, armaments and energy.

Lithuania's President Dalia Grybauskaite, whose Baltic nation is wary of the resurgent power on its eastern border, warned that "Russia is practically in a state of war against Europe" and urged EU military assistance to Kiev.

Ukrainian President Petro Poroshenko urged in Brussels to take tougher steps against Russia's "military aggression and terror" and warned that a "full-scale war" with Moscow is closer than ever.

"Today we are talking about the fate of Ukraine, tomorrow it could be for all Europe." Poroshenko said he expected the West to ramp up its arms supplies to Ukraine after discussions at a NATO summit in Wales on Thursday and Friday.

Although Russia continues to deny direct involvement in the conflict, there have been media reports of secret military funerals for those sent to fight in Ukraine.

Threat ... German Chancellor Angela Merkel said the new sanctions would build on existing measures against Russia which mainly cover financial services, armaments and energy. Picture: Tobias Schwarz/AFP Source: AFP

Moscow admitted that Russian paratroopers had been captured in Ukraine, but alleged they crossed the border by accident.

On Sunday Russian and Ukrainian officials confirmed that a prisoner swap had taken place on the north-eastern border with Ukraine.

"Nine Russian paratroopers were given to the Russian side" on Saturday evening, Lysenko said. A few hours later, 63 Ukrainian soldiers were handed over by Russia.

Rebels have pushed a lightning offensive around Ukraine's Azov Sea in the past week, prompting speculation of a possible attempt by Moscow to establish a corridor between Russia and the Crimean peninsula it annexed in March.

The rebels have advanced swiftly along the coast, capturing the town of Novoazovsk last Wednesday, just one day after Poroshenko met with Putin for talks that failed to achieve any breakthrough.

Alexander Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, told Russian media on Saturday that the insurgents were "preparing a second large-scale offensive." At Mariupol, volunteers manning the barricades fear their trenches and barbed wire will be little match for the insurgents' tanks, but recognise the importance of their task.

"It is the last big town in the region under Ukrainian control, home to half a million people," commander of Ukraine's Azov battalion, Andriy Biletskiy told AFP.

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