Russia said on Saturday its troops had abandoned their bastion of Lyman in Ukraine's east for fear of encirclement and the leader of Chechnya, a close Kremlin ally, said Moscow should consider using a low-yield nuclear weapon in response.
The fall of the town is a major setback for Moscow after President Vladimir Putin proclaimed the annexation of the Donetsk region, along with three other regions, at a ceremony on Friday that was condemned by Kyiv and the West as a farce.
"Allied forces were withdrawn from the settlement of ... Lyman to more advantageous lines because of the creation of the threat of encirclement," Russia's Ministry of Defence said.
The statement ended hours of official silence from Moscow after Kyiv first said it had surrounded thousands of Russian troops in the area and then that its forces were inside the town of Lyman.
Ramzan Kadyrov, the leader of Chechnya who describes himself as a footsoldier of Putin, said he was unable to remain silent after Moscow abandoned the territory, which the Kremlin had proclaimed to be part of Russia just a day earlier.
"In my personal opinion, more drastic measures should be taken, right up to the declaration of martial law in the border areas and the use of low-yield nuclear weapons," Kadyrov wrote on Telegram in a post in which he derided a Russian general.
The Russian defence ministry's statement made no mention of its troops being encircled.
"The Russian grouping in the area of Lyman is surrounded," Serhii Cherevatyi, spokesperson for Ukraine's eastern forces, said hours earlier.
He said that Russia had had 5,000 to 5,500 troops at Lyman but the number of encircled troops could be lower because of casualties.
"We're already in Lyman, but there are battles," the spokesperson said on television.
Two grinning Ukrainian soldiers taped the yellow-and-blue national flag on to the welcome sign at the town's entrance in Donetsk region's north, a video posted by the president's chief of staff showed.
"Oct. 1. We're unfurling our state flag and establishing it on our land. Lyman will be Ukraine," one of the soldiers said, standing on the bonnet of a military vehicle.
Neither side's battlefield assertions could be independently verified.
Russia has used Lyman as a logistics and transport hub for its operations in the north of the Donetsk region. Its fall would be Ukraine's biggest battlefield gain since a lightning counteroffensive in the northeastern Kharkiv region last month.
The Ukrainian military spokesperson said the capture of Lyman would allow Kyiv to advance into the Luhansk region, whose full capture Moscow announced at the beginning of July after weeks of slow, grinding advances.
"Lyman is important because it is the next step towards the liberation of the Ukrainian Donbas. It is an opportunity to go further to Kreminna and Sievierodonetsk, and it is psychologically very important," he said.
Donetsk and Luhansk regions together make up the wider Donbas region that has been a major focus for Russia since soon after the start of Moscow's invasion on Feb. 24 in what it called a "special military operation" to demilitarise its neighbour.
Putin proclaimed the Donbas regions of Donetsk and Luhansk and the southern regions of Kherson and Zaporizhzhia to be Russian land in Friday's ceremony - a swathe of territory equal to about 18% of Ukraine's total surface land area.
Ukraine and its Western allies branded Russia's move as illegal. Kyiv vowed to continue liberating its land of Russian forces and said it would not hold peace talks with Moscow while Putin remained as president.
Retired U.S. General Ben Hodges, a former commander of the U.S. Army in Europe, said a Russian defeat in Lyman after Putin's declaration would be a major political and military embarrassment for the Russian leader.
"This puts in bright lights that his claim is illegitimate and cannot be enforced," he said.
It remained to be seen how Ukrainian commanders would exploit the rout, he said, adding it likely would further erode the morale of Moscow’s troops holding other Ukrainian territory.
Cherevatyi said the operation around Lyman was still under way and Russian troops were mounting unsuccessful attempts to break out of the encirclement.
"Some are surrendering, they have a lot of killed and wounded, but the operation is not yet over," he said.
Ukraine's exiled governor of Luhansk said Russian forces had asked for a safe exit out of the encirclement, but Ukraine rejected the request.
The Ukrainian General Staff told Reuters it had no such information.