Kiev: The United States warned Russia on Thursday of stepped-up Western sanctions to make its economy "bleed" if it disrupts a crucial presidential election in Ukraine just 10 days away.
Ukraine`s interim leaders are battling to keep the country together for the May 25 vote in the face of a bloody insurrection in the east and a tense standoff with former master Russia.
Kiev on Wednesday hosted the first round of so-called national unity talks under an OSCE initiative to try to resolve the crisis on Europe`s eastern flank and allow the vote to go ahead.
Crucially however, the pro-Moscow rebels fighting against Kiev`s rule in the industrial east of the country were not at the table, despite Western calls for inclusive talks.
A US official told reporters in London that Washington and its allies are working "to send a unified message to pro-Russian separatists and Moscow that any disruption of these elections will result in the next round of costs for Russia including sectoral sanctions".
President Barack Obama has already drafted an executive order to impose sanctions across key sectors such as banking, energy, defence and mining, adding to punitive measures already imposed by Washington and Brussels.
"There are a lot of things we can do to create bleeding," the official said, adding that the aim was "to use a scalpel rather than a hammer".
Facing the very real prospect of Ukraine`s partition, interim President Oleksandr Turchynov had said Wednesday that his administration was ready to reach out to pro-Russians in the east but that the separatists must first lay down their arms.
"We will not yield to blackmail," he said. "We are ready to listen to the people of the east but they must not shoot, loot or occupy government buildings."Without the rebels there was no progress reported at the Kiev talks, but the US official said Ukrainians were working to hold another round in the restive east on Monday.
Western leaders see the May 25 vote as crucial for the future of Ukraine after Russia`s much criticised annexation of Crimea in March, which plunged relations between Moscow and the West to their lowest point since the Cold War.
Dozens of people have been killed in the southeast since mid-April as government troops battle rebels now occupying over a dozen towns and cities.
Fears are growing that Ukraine could tear apart after the separatists declared independence in the industrial regions of Donetsk and Lugansk following weekend referendums branded illegitimate by Kiev and the West.
"When Ukrainians kill Ukrainians I believe this is as close to a civil war as you can get," Russian Foreign Minister Sergei Lavrov said Wednesday.
"In east and south of Ukraine there is a war, a real war," he said, voicing "strong suspicions" Western mercenaries were operating on Ukrainian soil but insisted Russia had no intention of sending in troops.
President Vladimir Putin said last week Russia had withdrawn its estimated 40,000 troops from the border, but the West says it has seen no sign of a major pullback.Russia and Europe are also locked in a dispute over Ukraine`s gas debt after Moscow threatened to turn off the taps if Kiev fails to pay a $1.6 billion bill by June 3.
Putin said Thursday that Russia was still open to talks on the issue but complained that Brussels had failed to make any specific proposals.
Nearly 15 percent of all gas consumed in Europe is delivered from Russia via Ukraine, which is already facing further economic gloom despite a $17 billion IMF aid package.
The International Crisis Group think-tank said the Kiev government, set up in February after months of pro-EU protests triggered the ouster of the Kremlin-backed administration, faced an "uphill struggle" to make it to the election.
It said the "weak" interim leadership -- often depicted as fascists by Moscow -- appeared incapable of keeping order in the southeast and called on it to urgently reach out to the people there to listen to their demands for minority rights and self-government.
The White House said it understood Kiev`s reluctance to invite "those with blood on their hands" to the talks but said those with concerns about self-rule and constitutional reforms deserved to be heard.
The east of Ukraine remains on edge, with fighting flaring almost every night around rebel flashpoints and reports -- difficult to confirm -- of attacks on election centres and government officials.
Kiev says almost 50 people have been killed in the east since mid-April, including members of the armed forces as well as civilians and separatists.
Another 42 perished in clashes and a building inferno in the southern port city of Odessa in early May.
On the ground, an AFP photographer reported that scores of armed men had stormed a town hall in the city of Antratsyt, part of the Lugansk region.
The Organisation for Security and Cooperation in Europe roadmap calls for "restraint from violence, disarmament, national dialogue, and elections".
OSCE-appointed mediator Wolfgang Ischinger said the talks should contribute to an "electoral process that is inclusive, honest and transparent".
While voicing support for the OSCE plan, the Kremlin insists Kiev first halt so-called "reprisal raids" in the east and hold negotiations over regional rights.
Moscow has however rolled back its vehement opposition to the election, with the speaker of the State Duma, Sergei Naryshkin, describing it as "the lesser of two evils".