Resurgent Ukrainian forces hoisted the national flag over a strategic rebel-held port on Friday while the embattled leaders in Kiev made urgent preparations for a looming Russian gas cut.
Ukraine's new Western-backed President Petro Poroshenko celebrated the soldiers' "heroism" by proclaiming the industrial Sea of Azov city of Mariupol the new temporary capital of Donetsk -- an eastern rustbelt region overrun by pro-Russian gunmen for the past two months.
The 48-year-old chocolate baron rose to power in a snap May 25 ballot called after the February ouster of a Russian-backed leader by vowing to move Ukraine closer to Europe and end fighting that has claimed 270 lives.
But the battles have since only intensified and his calls for dialogue with more moderate separatist leaders have been mostly ignored.
Poroshenko's troubles have been compounded by the threat of Ukraine being cut off from economically-vital Russian gas shipments as early as Monday morning because of a bitter price dispute.
Prime Minister Arseniy Yatsenyuk told regional administrations and the heads of the state energy company to prepare for the consequences of a possible gas cut by implementing a plan for reduced energy use.
Heavy rebel losses
Mariupol has wavered between rebel and Kiev control for weeks and was also the scene of pitched battles on May 9 that killed more than a dozen people.
The bustling port of half a million people provides access to the main highway linking other regions with Russia and is the main export channel for coal and industrial products fundamental to Ukraine's economic growth.
Ukrainian Interior Minister Arsen Avakov said that federal forces led by the part-volunteer National Guard had inflicted "heavy losses" on the rebels while seeing only four soldiers suffer light wounds.
But the prosecutor's office also confirmed that three soldiers died late Thursday when they were ambushed by the militia in the Donetsk region town of Stepanivka.
His deputy told reporters that 30 pro-Russian gunmen had been captured in a coordinated push involving special forces that saw rebels driven from the city's seat of power they had reoccupied about a month ago.
"Thanks to the heroism shown by Ukrainian soldiers in Mariupol, the situation in the city has been stabilised," Poroshenko's office said in a statement.
"In light of this, it would be prudent to transfer the operation of the Donetsk regional administration to Mariupol," he wrote.
The region's main administration building in Donetsk remains under rebel control.
Monday morning gas cut
The tense exchanges between Kiev and Moscow have been fuelled in part by the lack of any progress in a high-stakes "gas war".
The dispute -- a nagging presence for most of the past two decades -- flared up again when Moscow nearly doubled Kiev's rates in the wake of the February ouster of Ukraine's Russian-backed president.
Ukraine receives half of its gas supplies from Russia and transports 15 percent of the fuel consumed in Europe.
The head of Ukraine's state energy firm said Kiev was ready to make a $1.95-billion (1.45-billion-euro) payment demanded by Moscow by Monday if Russia settled on a price of $326 per 1,000 cubic metres of gas.
The figure runs in the middle of the "final price" offer Putin made on Wednesday and the rate sought by Ukraine.
Moscow is yet to respond to Kiev's latest suggestion.
A spokeswoman for Russia's energy minister also refused to confirm EU Energy Commissioner Guenther Oettinger's earlier suggestion that new negotiations might be held on Saturday.
"We are not planning any meetings so far," energy ministry spokeswoman Olga Golant told AFP.
But the Kremlin's official spokesman rejected charges that Russia was assuming an obstructive stance in the talks.
"We categorically disagree with the idea that Russia is undermining the negotiations," spokesman Dmitry Peskov told Russia's Interfax news agency.
"We rather tend to take a different point of view: we still see a deficit of desire on the part of Kiev to settle these issues," Putin's spokesman said.
Analysts said the talks' slow progress reflected the complete loss of trust between the neighbours and the high stakes involved in the broader East-West battle for the future of the ex-Soviet state.
"We see gas talks as the derivative of the wider dispute between Russia and Ukraine," New York's Morgan Stanley investment bank said in a research note.