Russian troops seen to mass at Ukraine border as rebels reject peace plan

But Ukrainian troops and pro-Russian separatists were locked in fierce fighting in the east of Ukraine after rebels rejected the call to lay down their arms in line with Poroshenko's plan, government forces said.

Heavy fighting broke out at around 4 a.m. local time near the town of Krasny Liman, which itself has been under government control since early this month.

"We issued an ultimatum to the terrorists overnight to surrender their weapons. We guarantee their safety and investigation in line with Ukrainian law ... They refused," said government forces spokesman Vladyslav Seleznyov.

"Now we are trying to narrow the encirclement. They are trying to break out," Seleznyov said.

No details of the fighting were immediately available from the rebels' side.

Poroshenko also said Thursday that he would sign an association agreement with the European Union on June 27, including the Deep and Comprehensive Free Trade Agreement. 

Negotiations about the agreement began in 2008 after Ukraine joined the World Trade Organization. The deal was delayed because Ukrainian leaders feared that signing it would anger Russia, Ukraine's largest trading partner.

In the end, Moscow-supported Ukrainian President Viktor Yanukovych backed out — igniting street protests in Kiev that led to the dissolution of his regime in February. Russia in turn annexed the Crimean peninsula, and separatist rebellions in eastern Ukraine followed in early April. Many rebels have called for union with Russia.

For its part, Kiev has accused Russia of fomenting the unrest in the east and allowing volunteer fighters from Russia to cross into Ukraine to support the rebels.

All told, the violence has cost the lives of 147 Ukrainian soldiers and wounded 267, the Defense Ministry said on Wednesday. But the overall death toll is much higher; many scores of separatist militia members, civilians and members of other military bodies such as the national guard have also been killed.

Figures released by the United Nations on Wednesday said 356 people had been killed in the conflict so far, of whom 257 were civilians.

Ukrainian forces, which lost 49 servicemen on June 14 when separatists brought down a military helicopter in Luhansk region, have been gradually tightening their encirclement of rebel positions to the south and east of Krasny Liman, including the rebel stronghold of Slovyansk.

Up to 4,000 separatist fighters could be involved in Thursday's fighting near Krasny Liman, and armored vehicles and possibly tanks were being used by both sides, the military source said.

The reported use of tanks could not be independently confirmed.

Military sources said the Ukrainian forces had fired leaflets into rebel areas giving them an ultimatum to lay down their weapons in line with the Poroshenko blueprint.

"There is an ongoing active phase of the ATO [anti-terrorist operation] in the region of Krasny Liman," said Seleznyov, the government forces spokesman.

Asked about the report that 4,000 separatists could be involved, Seleznyov replied: "Then there'll be 4,000 coffins."

Wire services