IMF approves $17bn aid deal for Ukraine

The International Monetary Fund has approved a $US17 billion ($A18.4 billion) aid deal for the beleaguered Ukrainian economy as Kiev's armed forces went on "full combat alert" against a possible Russian invasion.

Pro-Kremlin insurgents tightened their grip on the chaotic east of the country, storming the police headquarters and town hall in the city of Gorlivka, adding to more than a dozen locations already under their control.

IMF chief Christine Lagarde, speaking in Washington on Wednesday after her executive board approved the huge aid plan, said "urgent action was necessary".

"Deep-seated vulnerabilities together with political shock have led to a major crisis in Ukraine," she warned.

Ukraine faces deep fiscal problems, and President Vladimir Putin has threatened to cut off gas supplies if a $US3.5-billion bill is not quickly paid.

The loan money will be released over two years, with a first tranche of $US3.2 billion available immediately.

The IMF had been wary about lending to Ukraine after two previous loan plans failed because of the government's failure to implement reforms that the new interim administration has now promised to carry out.

The European Union said talks with Russia and Ukraine will take place in Warsaw on Friday to try to resolve the row over the money that Gazprom calculates Kiev owes

The rebels lifted their siege of the HQ building in Gorlivka after the police chief promised to step down, while local media reported pro-Russian militants had seized the council building in the city of Alchevsk without encountering resistance.

Ukraine's interim president Oleksandr Turchynov told his cabinet the nation's law enforcement bodies were "helpless" to prevent the insurgents storming official buildings in the restive east.

He said the nation's armed forces have been put on "full combat alert" in the face of what he called a "real threat" of Russia starting a war against the former Soviet republic.

Kiev had arrested the Russian defence attache and asked him to leave, accusing him of spying, according to media reports.

Yulia Tymoshenko, a former prime minister who is a frontrunner for presidential elections on May 25, said Russia had already started an "undeclared war" against her country.

Negotiations continued to secure the freedom of seven European monitors from the OSCE (Organization for Security and Cooperation in Europe) as the rebel leader holding them said they would be released "at the first opportunity".

"The dialogue is constructive. We understand each other," the self-styled mayor of the flashpoint town of Slavyansk, Vyacheslav Ponomaryov, told reporters.

Putin said he hoped the OSCE team would soon be able to "freely leave the territory" of Ukraine, but laid the blame squarely at Kiev's door.

Russian officials have accused the US of wanting to reinstitute "Iron Curtain"-style policies and warned the US sanctions imposed on Russia would "boomerang" back to hurt it.

But the tensions are already having an impact on the Russian economy, which the IMF announced Wednesday was already "experiencing recession".