Russia warned Monday that Europe's peace was at risk over the escalating crisis in Ukraine, where deadly fighting raged around a flashpoint eastern city and the interim president warned of "war".

European leaders fearing all-out civil war was breaking out on their eastern flank have launched a desperate new peace bid, trying to force Ukraine and Russia to find a negotiated solution before it is too late.

The chairman of the Organisation for Security and Cooperation in Europe, Didier Burkhalter, was due in Moscow on Wednesday amid calls for his group to mediate between Kiev and the separatists in the east.

But events on the grounds were overtaking the diplomatic initiative.

Fierce exchanges of fire were taking place to the east and south of the town of Slavyansk, the epicentre of the armed insurgency, as Ukrainian troops corralled pro-Russian gunmen towards the centre for what could be a devastating showdown.

"They are waging a war on us, on our own territory," Interior Minister Arsen Avakov told reporters as he oversaw the offensive in the combat zone. "My mission is to eliminate the terrorists."

He said there had been deaths in the exchange of fire by small arms and heavy weapons, but did not immediately give a toll for each side.

The advance on Slavyansk was part of a wider military operation in the east to root out the insurgents, who are holding more than a dozen towns and who have declared two autonomous territories around them.

There were concerns also for the south of Ukraine, in the port city of Odessa, which was seething after a deadly day of clashes and a fire last Friday that killed 42 people.

Russia, which denies any hand in the eastern or southern violence, warned in a foreign ministry report on Monday that the unrest in Ukraine was now "fraught with such destructive consequences for Europe's peace, stability and democratic development that it is absolutely necessary to prevent it".


'Mass violations'

The report accused Ukrainian "ultra-nationalists" -- who Moscow claims controls Kiev's government -- of rights violations on a "mass" scale.

Earlier Monday, Ukraine's interim president declared that Russian meddling had brought war to his country, and warned that pro-Russian provocateurs might stage violence in Kiev during celebrations on Friday marking the Soviet victory over Nazi Germany in World War II.

"War is in effect being waged against us, and we must be ready to repel this aggression," said Oleksandr Turchynov, who has placed Ukraine's armed forces on combat alert and reintroduced conscription amid fears of a Russian invasion.

On a visit to Odessa on Sunday, Prime Minister Arseniy Yatsenyuk vowed a full investigation into the violence that occurred there last week and blamed what he called the "inefficient" police force.

The unrest was part of a Russian plan "to destroy Ukraine and its statehood," Yatsenyuk charged.

After an angry pro-Russian crowd on Sunday stormed Odessa's police headquarters and forced officers inside to free 67 of their arrested fellow activists, authorities moved the 42 remaining inmates to other parts of Ukraine.

Pro-Moscow demonstrations also took place in the industrial eastern hub of Donetsk overnight but AFP reporters said the city was calm Monday.


'Round-table talks'

The visit to Moscow by OSCE chief Burkhalter, who is also the Swiss president, was agreed in a phone call between Russian President Vladimir Putin and German Chancellor Angela Merkel late Sunday.

"Putin and Merkel stressed the importance of effective international action -- especially by the OSCE -- in reducing the tensions in Ukraine," Russia said in a statement.

Merkel's office said "round-table discussions" would be set up under OSCE auspices to "facilitate national dialogue before the presidential election" planned for May 25.

German Foreign Minister Frank-Walter Steinmeier told German television that he was in talks with the Russians, the United States, the European Union and the OSCE to hold a second peace conference in Geneva.

A first effort to defuse the crisis was agreed in the Swiss city on April 17. But Russia last week pronounced the accord dead after Kiev stepped up military operations that Moscow slammed as "war against its own people".

As the diplomatic war of words heated up, Moscow has also criticised as "absurd" plans to hold the presidential election given the violence raging across the country.

Moscow's stance has raised the prospect of tougher US sanctions on whole sectors of the recession-hit Russian economy.

US President Barack Obama has warned the West would step up its punitive action if Moscow continued what he called the "destabilisation" of Ukraine.

French Foreign Minister Laurent Fabius tweeted that Europe was "not responding as it should" to the crisis "because of its energy dependence" on Russia.

Moscow has threatened to turn off the gas taps to Ukraine -- and by extension several European countries -- if Kiev does not pre-pay its June bill.

The separatists in Ukraine are preparing their own spoiler of the May 25 election by moving ahead with plans to hold an independence referendum on Sunday.

The presidential vote was called by Ukraine's new leaders shortly after the ouster of pro-Kremlin president Viktor Yanukovych in February, the culmination of months of sometimes deadly pro-EU protests.