Ukrainian government forces have pulled back from a key combat zone in the eastern part of the country, after days of violence in the area despite a supposed cease-fire.
Around 80 percent of soldiers had withdrawn from the town of Debaltseve, according to Ukraine President Petro Poroshenko, who was quoted by Reuters.
He added that the withdrawal was being carried out in a "planned and organized" manner and comes after unconfirmed reports by pro-Russian separatists that government troops were surrendering.
The cease-fire agreement, signed last week by Russia and Ukraine, was supposed to lead to the withdrawal of heavy artillery in the key conflict zones in the east of the country. Debaltseve has seen continued fighting, however, and a huge gas explosion near the town Tuesday was reported to be caused by a mortar shell hitting a gas pipeline.
The battle for this strategic location - with its key transport links - could be a potential turning point in the war over the eastern region of Donbas – and also the conflict in Ukraine more broadly.
"The loss of Debaltseve, defended by very significant Ukrainian forces, would perhaps send a clear signal that Russian-backed rebels have the potential, almost at will, to further extend gains into Donbas, and even the rest of Ukraine," Timothy Ash, head of emerging markets at Standard Bank, said before the withdrawal.
Meanwhile, rhetoric over the conflict stepped up overnight, with both U.S. Vice President Joe Biden and Russian President Vladimir Putin weighing in.
During a trip to Hungary, Putin said that weapons were being supplied to Ukrainian troops from abroad, citing Russian intelligence, and warned that such deliveries would only lead to a greater loss of life in the region, Dow Jones reported.
He also urged the Ukrainian government to allow its troops to surrender to pro-Moscow rebels and said he hoped that soldiers who surrendered would be allowed to return to their families.
To date, the U.S. has only hinted at the possibility of supplying weapons to Ukraine alongside financial aid, which has also been provided by the European Union and the International Monetary Fund (IMF).
An official statement from the White House late Tuesday showed that Biden has spoken with Petro Poroshenko, the president of Ukraine, with both condemning the violation of the cease-fire by separatist forces "acting in concert with Russian forces."
"The Vice President agreed with President Poroshenko that if Russia continues to violate the Minsk agreements, including the most recent agreement signed on February 12, the costs to Russia will rise," the statement said.
Canada, meanwhile, announced more sanctions against Russia Tuesday, despite Moscow continuing to deny the involvement of Russian troops in the conflict. Sergey Chemezov, the chief executive of state-owned defense firm Rostec, was named on the sanctions list, as well as state oil giant Rosneft.
Ukraine was thrown into turmoil at the start of last year, after protests between anti-government and pro-EU demonstrators led to a change of leadership. Tensions on the streets of Kiev turned into military conflicts on the eastern border, with Moscow accused of aiding pro-Kremlin rebels in the region.
Samantha Power, the American ambassador to the United Nations, repeated these accusations late Tuesday, saying that Russia was fighting alongside Russian trained and armed separatists in Debaltseve. This came despite the U.S. also backing the Russian sponsored peace proposal on Tuesday.