Ukraine's President Petro Poroshenko on Saturday issued a decree ordering the withdrawal of all state services from the rebel-held east of the country.
The order covers services such as schools, hospitals and emergency services, a senior security official speaking on condition of anonymity told AFP.
Poroshenko ordered his cabinet to take steps within a week "to terminate the activities of state enterprises, institutions and organisations in the various territories where anti-terrorist operations are being conducted," the decree said.
"This is a decisive step, the games have stopped," the official added. "All the structures that the state finances will be withdrawn from there."
"Ukraine will no longer finance them. This includes schools, kindergartens and hospitals."
Seven months of fighting between Ukrainian forces and pro-Moscow separatists with strongholds in eastern Ukrainian cities such as Donetsk and Lugansk have killed over 4,100 people, the UN says.
The move comes with the unrest in Ukraine high on the agenda at a G20 summit in Brisbane, where Western leaders piled fresh pressure on Russian President Vladimir Putin.
Russia denies involvement in the conflict, in which a shaky ceasefire agreed in September is in place, stopping some frontline fighting but not artillery bombardments around strategic hotspots.