KIEV - Kiev accused Moscow on Friday of seeking to trigger a "third world war" as military tensions soared in east Ukraine and US President Barack Obama led a diplomatic charge against Russia.
A rocket-propelled grenade blew up a Ukrainian military helicopter sitting on the tarmac at a base near the eastern town of Kramatorsk, officials in Kiev said. The pilot escaped but was wounded. Smoke spewed into the sky over the rebel-held town.
The brazen attack by the insurgents came amid an army offensive to dislodge pro-Kremlin gunmen who are holding a string of eastern towns.
Kiev announced Friday that its forces were now seeking to "blockade" rebels inside another flashpoint town, Slavyansk, to prevent militant reinforcements arriving.
An AFP journalist saw heavily armed troops setting up a checkpoint some 30 kilometres (18 miles) from the city of 110,000 people.
On Thursday, Ukrainian armoured vehicles and commandos had made a brief but dramatic incursion into Slavyansk, killing one 22-year-old insurgent.
A rebel manning a roadblock in the town vowed that, if the army returned, "We will defeat them and we won't take any prisoners".
Russia responded by ordering its troops massed on Ukraine's border to launch a new military exercise, with its foreign minister Sergei Lavrov claiming that Kiev's offensive was part of a US plot to "seize" Ukraine for its own "geopolitical ambitions and not the interests of the Ukrainian people".
The developments prompted German Chancellor Angela Merkel to call Russian President Vladimir Putin to voice "great concern" over the situation and to urge implementation of an accord signed in Geneva a week ago that was meant to defuse tensions.
Merkel's spokesman told reporters in Berlin that Russia faced the threat of further sanctions: "In case nothing changes, it is important to be prepared for more".
Germany's foreign minister, Frank-Walter Steinmeier, warned: "There is not much time to end this madness."
Ramping up the Cold War-style rhetoric, Ukrainian Prime Minister Arseniy Yatsenyuk accused Russia of trying to spark a global conflict.
"The world hasn't forgotten the Second World War and Russia wants to start a third world war," he said.
"Russia's support for the terrorists in Ukraine constitutes an international crime and we call on the international community to unite against the Russian aggression." US Secretary of State John Kerry said the Kremlin was trying to "actively sabotage the democratic process through gross external intimidation" and described the latest Russian drills as "threatening".
"Let me be clear: if Russia continues in this direction, it will not just be a grave mistake, it will be an expensive mistake," he said.
With the threat of further sanctions hanging over Russia, Standard and Poor's on Friday downgraded its credit rating to one notch above junk status. Russia's central bank reacted by raising its key interest rate in a bid to offset "growing inflationary risks".
Obama, currently engaged in a crucial week-long trip to Asia, said he would be consulting with key EU leaders later on Friday from South Korea.
Meanwhile, Lavrov complained about the allegations from his US, British and French counterparts that Russian agents were orchestrating events in eastern Ukraine.
"'Sergei, you have to pull back the troops, you have to remove your agents, no one in the world believes you Russians are not there in the southeast and that you have not had your hand in all of this,'" he quoted the Western diplomats as saying.
"It's very hard for me to react," he said, dismissing the claims.
Ukraine's acting President Oleksandr Turchynov has pledged to push on with the "anti-terrorist" offensive to put down the rebellion in the east.
"We will not back down from the terrorist threat," Turchynov said in a televised address Thursday, telling Russia to stop interfering in Ukraine's internal affairs.
Yulia Tymoshenko, a former prime minister who is a frontrunner for a May 25 presidential election in Ukraine, publicly warned Putin that if he starts a war, it "will be the end of your regime".
"We shall win and your people will answer for all the crimes," she said on her official website.
While Obama has ruled out sending US or NATO forces into Ukraine, Washington has begun deploying 600 US troops to boost NATO's defences in nearby eastern European states.
France also said it was sending four fighter jets to join NATO air patrols over the Baltic states.
Oil prices, which rocketed up on the tensions Thursday, fell back slightly on Friday. Stockmarkets remained nervous.
"Both sides keep drawing red lines.... Traders are worried that someone ends up stepping over one of them," said a London analyst, Jonathan Sudario of Capital Spreads.
Russia, which supplies gas to Ukraine and to many EU countries, has said it can weather US sanctions but warned they would trigger a tit-for-tat cycle which no-one would win.
The United States and the European Union have already targeted Putin's inner circle with visa and asset freezes and imposed sanctions on a key Russian bank.
Some EU states fear that further sanctions could hamper gas supplies from Russia and undermine a fragile European economic recovery, although Russia remains reliant on gas sales with its economy tipped to plunge into recession this year.
Russia saw capital outflows in the first quarter of 2014 double from a year earlier to $50.6 billion (37 billion euros) over the uncertainty created by the Ukraine crisis and fears of greater sanctions.