Russia and the United States stepped up their rhetoric over the spiralling crisis in Ukraine, as pro-Moscow militants shored up control of key buildings in the country's increasingly chaotic east Wednesday.
President Vladimir Putin threatened that US sanctions against Moscow could harm Western energy interests in Russia, which the West blames for stoking the worst confrontation since the end of the Cold War.
US Secretary of State John Kerry hit back, urging Moscow to "leave Ukraine in peace" and vowing to "defend every single inch" of NATO territory. Ukraine is not a member of the North Atlantic Treaty Organisation, but several of its neighbours are.
Meanwhile, unrest in the eastern regions of the ex-Soviet republic continued to seethe as pro-Russia rebels, spearheaded by a heavily armed mob, took control of the police station in Lugansk after a stand-off with tear gas and shots fired.
Police had tried to hold off an angry mob of some 1,000 demonstrators with grenades and tear gas but eventually turned over their headquarters and weapons to the rebels.
Ukraine's interim president Oleksandr Turchynov lashed out at what he called the "inaction" and in some cases "treachery" of the police services in the east.
Lugansk is one of more than a dozen towns in the east of the country that have fallen under the control of the rebels, who do not recognise what they see as the "fascist" Western-backed authorities in Kiev.
Speaking at a regional summit in Minsk late Tuesday, Putin reiterated his denial that Moscow's troops were involved in the violence in eastern Ukraine.
"There are neither Russian instructors, nor special units, nor troops there," said Putin.
And he hit back at Western sanctions against Russia, unveiled on Monday, warning that foreign companies operating in the lucrative Russian energy market could suffer as a result.
"If this continues, we will of course have to think about how (foreign companies) work in the Russian Federation, including in key sectors of the Russian economy such as energy," Putin told reporters.
Putin's comments threaten the operations of some of the world's biggest energy companies in the resource-rich state -- once viewed as a reliable alternative to unstable natural gas and oil producing countries in the Middle East.
Among those targeted by the US sanctions is the president of Rosneft, Russia's top petroleum company and one of the world's largest publicly traded oil companies.
The EU said talks with Russia and Ukraine will take place in Warsaw on Friday to try to resolve a $3.5-billion gas bill Gazprom calculates Kiev owes. Putin has threatened to cut off the gas flow to Ukraine if it is not quickly paid.
Russian officials have accused the United States of wanting to reinstitute "Iron Curtain"-style policies with the sanctions and warned they could "boomerang" back to hurt them.
US moves to restrict high-tech exports to Russia appeared to cause particular fury, with Moscow warning Washington was "exposing their astronauts on the ISS".
The International Space Station is operated jointly by Russia, the United States, Europe, Japan and Canada and relies on Russian rockets to get to it.
Moscow has also taken aim at Japan and the European Union, which it accused of "doing Washington's bidding" as it joined in the coordinated sanctions push.
And the fear of a Russian invasion of its neighbour still looms large, with NATO saying there was no indication Moscow was making good on its pledge to pull back its tens of thousands of troops from the border.
The Pentagon is looking at additional support measures for its eastern European NATO allies increasingly worried over Russia's military actions.
In particular, the US is planning to beef up training exercises planned for June in the Baltic states.
Separately, US Vice President Joe Biden met Latvian Prime Minister Laimdota Straujuma at the White House and underscored Washington's "iron-clad commitment" to the collective defence of its NATO allies, the White House said in a statement.
Russian media reported that Putin could travel to the annexed territory of Crimea on May 9 -- two days before rebel-held towns in east Ukraine plan to follow in its footsteps by holding an independence referendum.
In a small chink of light amid what EU foreign policy supremo Catherine Ashton called a "downward spiral of violence and intimidation", there were hopes a team of kidnapped international monitors from the Organisation for Security and Cooperation in Europe could soon be freed.
The rebel leader in the flashpoint town of Slavyansk said late Tuesday that there had been "good progress" in frantic talks to free the seven European officials and hoped for a "positive outcome".
"Negotiations are continuing," a rebel spokeswoman told reporters on Wednesday.
The head of the OSCE was in Kiev on Tuesday for negotiations. The head of the Council of Europe and the Austrian foreign minister were expected in the Ukrainian capital later Wednesday.
Putin said he hoped the OSCE team's situation "will be resolved and that they are able to freely leave the territory (of Ukraine)".
But he laid the blame for the detentions squarely at Kiev's door.
"All those involved in what happened should draw corresponding conclusions from what happened," said Putin.
"If the government -- or those who now call themselves the government -- invited some sort of observers... then these (observers) should have understood that they were entering a conflict zone, a region of the country that does not recognise the authorities' legitimacy," he said.
"They should have thought about that in advance, and agreed (their mission) with the people who control this territory."
The crisis in Ukraine has slipped rapidly into a global confrontation since February when Moscow-backed president Viktor Yanukovych was forced out after months of increasingly bloody protests.