The offensive against the separatist militants threatens to further escalate tensions with Russia, which has 40,000 troops massed on Ukraine's eastern border and has warned Kiev against the use of force.
Ukraine's Interior Minister Arsen Avakov announced on Facebook that units from "all of the country's force structures" were taking part in the operation in the poor mining town of Slavyansk. He later said the gunmen had opened fire on special forces and were "shooting to kill".
This came after a week of soaring tensions as pro-Russians demanding greater autonomy, or to join nearby Russia, stepped up protests in the region.
Avakov said the events were seen in Kiev as an "act of aggression" by Russia, which has flatly denied any role in the unrest sweeping Ukraine's east.
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US Secretary of State John Kerry yesterday phoned his Russian counterpart Sergei Lavrov and "made clear that if Russia did not take steps to de-escalate in eastern Ukraine and move its troops back from Ukraine's border, there would be additional consequences", a senior State Department official said.
And today, France said it would support new sanctions against Moscow if there is a military escalation in Ukraine, speaking on the eve of a meeting of EU foreign ministers in Luxembourg to discuss the crisis.