Pro-Russian separatists voted unanimously on Thursday in favor of holding a referendum on independence, defying calls by President Vladimir Putin to postpone the vote to open the way for talks with the Kiev authorities.
Many in Ukraine's industrial east said Sunday's referendum was the only way to prevent war, adding that without it they would lose the faith of a population fired up over what the rebels, and Moscow, call the "fascist" government in Kiev.
Russian markets sank on the news, and in Kiev, officials promised to press on with their "anti-terrorist campaign" to retake control over the regions of Donetsk and Luhansk regardless of the rebels' decision on the poll.
"We have just voted in the People's Council ... The date of the referendum was endorsed by 100 percent. The referendum will take place on May 11," rebel leader Denis Pushilin told reporters.
"There are millions of people who want to cast their votes. Even if we had voted against holding the referendum, it would have happened anyway. Civil war has already begun. The referendum can put a stop to it and start a political process."
A man in civilian clothes holding a Kalashnikov assault rifle stood behind Pushilin as he spoke.
The referendum will take place in Donetsk and Luhansk.
Russia's MICEX fell 0.16 percent while RTS was down 0.22 percent on the move, reversing earlier gains.
In a surprise announcement on Wednesday, Putin called on the rebels to postpone the vote to create conditions for dialogue between Kiev and the east, offering a possible chance to ease tensions in the conflict-ridden country.
Kiev has rejected the referendum as illegitimate, and Prime Minister Arseniy Yatsenyuk suggested Putin's command was proof Moscow was behind an uprising across Ukraine's east. Russia denies playing any role in the upheaval.
Ukraine's top security official, Andriy Paruby, said earlier on Thursday that Kiev would press on a campaign to regain control of the country's east.
"The anti-terrorist operation will continue regardless of the decision of terrorist groups in Donetsk and Luhansk regions," he told a news conference in Kiev.
In the rebel stronghold of Slovyansk, most of those interviewed said the referendum should go ahead.
"The referendum needs to be held as planned, otherwise there will be no end to this standoff," said Valentina, a pensioner who declined to give her full name.
"Putin's over there, we're here and can see that people aren't going to go anywhere until they've had a chance to have their say."