The prime minister of Ukraine's self-proclaimed Donetsk People's Republic announced Thursday that he was resigning his position.

Russian citizen Alexander Borodai said he was stepping down in favour of a local field commander, Alexander Zakharchenko, after finishing his work as a "start-upper".

Borodai denied he was fleeing the unrecognised republic as a brutal government offensive closed in around the million-strong city.

"I think that the worst is over. Yes, we are in a very difficult military situation but every day this situation changes for the better and our armed forces grow stronger," he told journalists at a press conference in the rebel headquarters.

The unshaven Muscovite said he wanted to hand the post on to someone originally from the region but pledged to continue work as a deputy prime minister.

Borodai, a fervent Russian nationalist and former journalist, emerged at the head of the rebels in May as one of a handful of key Russian leaders directing the insurgency.

The appearance of Russian citizens at the head of the rebel movement fueled claims that Moscow was backing and arming the insurgency.

Borodai admitted that he had helped steer through the Kremlin's annexation of Ukraine's Crimea peninsula in March but always remained a junior partner to the rebel's top military leader Igor Strelkov, a self-confessed former Russian intelligence officer whose real name is Girkin.

Borodai's replacement Zakharchenko, who is reportedly from Donetsk, served as a field commander under Strelkov and headed an organisation of amateur fight enthusiasts who supported Ukraine's deposed president Viktor Yanukovych.