Residents of Slavyansk were warned to stay home and avoid windows as the latest phase of the authorities' "anti-terrorist operation" got under way.
Conflicting reports are emerging, but it appears the operation has already claimed its first casualties.
Two Mi24 helicopters have been taken down with mobile air defense systems, killing two military officers and injuring others, according to the Ukrainian Defense Ministry website. Another army helicopter, an Mi8, was damaged but no one was hurt, it said.
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Militants took one badly injured pilot hostage after his helicopter was forced to make an emergency landing, the ministry said, and efforts to free him are ongoing.
Ukraine's security service, the SBU, said one helicopter that came under attack was carrying medics, one of whom was injured.
"The terrorists opened fire at Ukrainian units with some heavy guns, including grenade launchers and portable air defense systems," Interior Minister Arsen Avakov said in a post on his official Facebook page.
Four separatists have been detained at a checkpoint on suspicion of involvement in bringing down the aircraft, the Defense Ministry said.
Russian state news agency RIA Novosti earlier reported that one Russian separatist was killed and another wounded in Slavyansk.
The self-declared mayor of Slavyansk, Vyacheslav Ponomaryov, said his city was under attack in a video statement published by local media and posted to YouTube.
"We are being stormed, we have got casualties. I'm asking children, women and the elderly not to leave their homes and I ask armed men to provide us all the assistance they can," he said. "I think we will be able to successfully stand up for our city. Thank you for your attention, thank you for your assistance, we will win."
The operation, also targeting the town of Kramatorsk, appears to be the most significant yet by the Ukrainian military against pro-Russian militia groups that have taken effective control of swaths of eastern Ukraine.
What's not yet clear is whether the escalating violence may prompt a response by Russia, which has previously said it has the right to intervene in Ukraine to protect Russian speakers. CNN