At least 200 gunmen surrounded a compound housing a unit of Ukraine's National Guard and opened fire, despite a temporary truce that had been accepted by both sides.
A witness told AFP that the rebels, who had pulled an armoured personnel carrier flying a Russian flag up to the compound, wanted the National Guard unit's immediate surrender.
"An ultimatum was issued by the fighters of the Donetsk People's Republic. The unit refused to leave. So (the rebels) opened fire," said Sergiy, 49, who said he supported the separatists' cause despite his son, a National Guard member, being stranded inside the compound.
It added that negotiations with rebel representatives were currently underway.
The National Guard unit that came under attack had not been involved in the government's 10-week campaign to stamp out the eastern insurgency, and was responsible for convoying prisoners in the region, witnesses said.
The truce is due to expire tomorrow at 1900 GMT, and both Western powers and Russia are pressing the two sides to agree an extension.