Pro-Russian militants just outside Sloviansk are retreating amid attacks by Ukrainian troops, reports say.
Government forces have taken a TV tower in the suburbs and rebels were pulling back deeper into the city, the Russian Interfax news agency said.
Almost continuous heavy gunfire could be heard, apparently closer to the centre than in recent days, a Reuters reporter said.
At least two separatist armoured vehicles were seen in retreat.
Unconfirmed reports said at least eight Ukrainian soldiers had been injured. Four ambulances were seen near the area and a number of rebels were said to have fled, Reuters reported.
Pro-Russian gunmen in Sloviansk are maintaining a watchful eye on Ukrainian troops on the outskirts
Residents in the city have been building barricades in preparation for the Ukrainian soldiers' advance
Fears of an impending offensive by Ukrainian forces on the pro-Russian stronghold had been growing overnight, sources inside the city said earlier.
Ukraine's army cut off the main road into the city on Sunday.
The move came days after rebels shot down two Ukrainian helicopters on the outskirts of Sloviansk, one of a dozen or more east Ukrainian cities where pro-Russian separatists have seized official buildings.
Ukrainian troops are currently carrying out what the Kiev government calls "anti-terror" operations in the east to wrest back control of these areas.
Speaking two days after dozens were killed in violence in the Ukrainian port city of Odessa, Ukraine's Prime Minister Arseniy Yatsenyuk accused Russia of executing a plan "to destroy Ukraine and its statehood."
"Russia's aim was to repeat in Odessa what is happening in the east of the country," he said, insisting Kiev had not lost control of the region.
The clashes on Friday left more than 40 dead, mostly pro-Russian separatists killed in a building fire.
Several thousand supporters of a united Ukraine, some of them masked and carrying sticks, rallied in Odessa late on Sunday before marching to the regional police headquarters.
Ukraine's President Viktor Yanukovych was overthrown by pro-Western protesters in February.
Russia then annexed the Crimean peninsula - part of Ukraine but with a Russian-speaking majority - in a move that provoked international outrage.
Separatist actions subsequently spread to eastern Ukraine, where Moscow is accused of backing pro-Russians who have seized official buildings in a dozen or more cities.
Despite the latest violence, the country plans to hold a presidential election on 25 May.
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