Pro-Russian rebels pounded encircled Ukrainian government forces on Monday and Kiev said it would not pull back heavy guns while a truce was being violated, leaving a European-brokered peace deal on the verge of collapse.
The European Union kept pressure on Russia and the rebels by announcing a new list of separatists and Russians targeted with sanctions, to which Moscow promised an "adequate" response.
Fighting subsided in many parts of eastern Ukraine under a cease-fire that came into force on Sunday, under the deal reached last week in marathon talks involving the leaders of France, Germany, Russia and Ukraine.
But the truce appears to have been stillborn in the town of Debaltseve where the most intensive fighting has taken place in recent weeks.
"The situation is fragile," said German Chancellor Angela Merkel, the driving force behind the deal reached on Thursday after all-night talks in the Belarussian capital Minsk.
"It was always clear that much remains to be done. And I have always said that there are no guarantees that what we are trying to do succeeds. It will be an extremely difficult path," she told reporters in Berlin.
Rebels said soon after it came into effect that they had no intention of observing the cease-fire at Debaltseve, where they have been advancing since January and now have a Ukrainian unit all but encircled.
Washington says the rebel operation around the town, which sits on a strategic railway hub, is being assisted by the Russian armed forces, which Moscow denies.
Reporters near the front said Debaltseve was being relentlessly bombarded with artillery. At least six tanks as well as armored personnel carriers and artillery could be seen in woods near Vuhlehirsk, 10 kilometers (six miles) west of Debaltseve, which the rebels captured a week ago.
Military trucks headed along the main road in the direction of the town to regular bursts of shelling and the firing of Grad rockets and machine guns.
"You can hear there is no cease-fire," said a rebel fighter with a black ski mask who gave his name as Scorpion, his nom de guerre, and blamed the fighting on Kiev's forces. "Debaltseve is our land. And we will take Debaltseve."
A rebel commander, Eduard Basurin, said Ukrainian troops had violated the cease-fire 27 times in the past 24 hours.
Kiev said its forces had been shelled more than 100 times in eastern Ukraine since the truce took effect, five of its servicemen had been killed and 25 wounded, and that it could not carry out an agreement to pull back big guns in such conditions.
"The pre-condition for withdrawal of heavy weapons is fulfilling Point One of the Minsk agreements — the cease-fire. One hundred and twelve attacks are not an indicator of a cease-fire," said a Kiev military spokesman, Andriy Lysenko.
A rebel leader, Denis Pushilin, responded by saying his forces were "only ready for a mutual withdrawal of equipment".
In another complication likely to set back hopes of peace, he and another separatist leader said the rebels would pull out of the Minsk agreements if Kiev made any further moves to abandon Ukraine's neutral status — also a red line for Moscow, which fears Ukraine might seek to join the NATO alliance.
The separatists offered the Ukrainian forces a safe corridor out of Debaltseve if they gave up their weapons but a military spokesman for Kiev, Vladislav Seleznyov, ruled this out.
"There are the Minsk agreements, according to which Debaltseve is ours. We will not leave," he said.