Pro-Moscow separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that could lead to war.
The decision,which contradicted the conciliatory tone set by Putin just a day earlier, caused consternation in the West, which fears the referendum will tear Ukraine apart.
U.S. Deputy Secretary of State William Burns said Russia was heading down a "dangerous and irresponsible path" and the situation in Ukraine was "extremely combustible".
Denis Pushilin, a leader of the self-declared separatist Donetsk People's Republic, expressed gratitude to Putin but said the "People's Council" had voted unanimously on Thursday to hold the plebiscite as planned.
"Civil war has already begun," he told reporters. "The referendum can put a stop to it and start a political process." A man holding a Kalashnikov stood behind him.
The announcement coincided with a sharp change of tone from Moscow, which had signalled a pullback from confrontation on Wednesday with Putin's call for the vote to be delayed and a declaration that troops were withdrawing from Ukraine's border.
Russian markets sank after surging on Wednesday. In Kiev, officials promised to press on with their "anti-terrorist campaign" to retake control over the eastern regions of Donetsk and Luhansk regardless of the rebels' decision on the vote.
Political analysts said Putin may have expected the rebels to go ahead with the referendum, showing that they were not under his orders. By distancing himself from a process that will not be recognised by the West, Putin may also hope to avoid further sanctions as earlier measures begin hitting the economy.
Putin's spokesman said the Kremlin needed more information about the rebels' decision. He said the rebel statement came only after the Western-backed government in Kiev had declared it would press on with its military operation, implying that Ukraine was to blame for the rebels' refusal to heed Putin.
NATO and the United States have both said they have seen no sign of a Russian withdrawal from the frontier despite Putin's announcement he had pulled back troops.
When NATO Secretary General Anders Fogh Rasumussen tweeted as much, the Russian Foreign Ministry tweeted back that "those with a blind eye" should read Putin's statement.
NATO has accused Moscow of using special forces in the separatist takeover of mainly Russian speaking eastern Ukraine after annexing Crimea from Ukraine in March.
Putin acknowledged his troops were active in Crimea after initially denying any role there but says they are not involved in eastern Ukraine, a densely-populated steel and coal belt responsible for roughly a third of Ukraine's industrial output.
Putin's unexpected call to delay the referendum, followed so quickly by the rebel decision to go ahead with it, have complicated U.S.and European efforts to agree a common policy that might lead to tighter economic sanctions on Russia.
The European Union said shortly before the announcement that it was waiting to see whether Putin's words would be followed by deeds and that the plebiscite "would have no democratic legitimacy and could only further worsen the situation".
At the same time, the Russian ambassador to Paris said Putin, who had been shunned by Western leaders since the Crimean takeover, would join them in a ceremony to mark the 70th anniversary of the Normandy landings in World War Two.
A Western diplomat in Moscow gave voice to the view that events were still being scripted by the Kremlin.
"Taking everything into account, I am somewhat surprised with the separatists' decision. Wasn't Putin supposed to be like the pope with his dogmatic infallibility?" the diplomat said.
The referendum has become seen as a vital step by many in Ukraine's industrial east, fired up over what the rebels, and Moscow, call the "fascist" government in Kiev that took over after street protests ousted a pro-Moscow president in February.
"You have no idea how many armed people there are in Donetsk right now," Roman Lyagin, the 33-year-old head of the self-proclaimed republic's election commission, told Reuters at his headquarters behind barricades of tyres and car bumpers in the occupied regional administration in Donetsk.
"There is no man who can move this referendum," he said.
Ballots, printed in Donetsk, have been distributed across the rebel zone, smuggled through Ukrainian army checkpoints. Lyagin says more than three million people are eligible to vote.
Artyom, a rebel at a roadblock in the rebel-held eastern town of Slaviansk, said of the referendum decision: "This is great news. We need to have our say."
While many Russian speakers in Ukraine fear discrimination under the new leadership, quite how many support the separatists, many of whom say their ultimate aim is to join Russia, is not so clear. Recent opinion polls say a majority wish to remain within Ukraine, but with a far greater degree of autonomy.
Putin said his call for the vote's postponement would open the way to negotiations on cooling down a crisis that has led to dozens of deaths in clashes between troops and separatists in eastern Ukraine and rival groups in the southern port of Odessa.
On Thursday he again pointed the finger at Kiev, whose "irresponsible politics" had caused the crisis.
Maria Lipman, an expert at the Carnegie Center think-tank in Moscow, said Putin would have known that his request for the referendum to be postponed would be rebuffed.
"But this can be used to show that the people in Ukraine's east are not Russians, take no orders from Russia, that Russia exercises no control over them because they only do what they want to do," she said.
"He has also distanced Russia from the referendum, which has a completely unclear status and will not be recognised by the West."
In a further shift from reconciliation, Putin oversaw test launches of military rockets during training exercises held across Russia on Thursday, the day before celebrations of the anniversary of its World War Two victory.
The West has accused Russia of using previous military exercises to build up forces along the border with Ukraine after its Moscow-backed president Viktor Yanukovich fled to Russia in February.
In the rebel-stronghold of Slaviansk, target of a Ukrainian military advance that began last week, self-declared mayor Vyacheslav Ponomaryov said a new offensive by Kiev was coming.
"We have enough fighters, enough weapons, the support of the people and we have our land," he said. "God is with us."