BRUSSELS/DONETSK (Reuters) - NATO said on Monday there was a "high probability" that Russia could launch an invasion of Ukraine, where the government said its troops have been closing in on Donetsk, the main city held by pro-Russian rebels.

Kiev said it was in the "final stages" of recapturing Donetsk, by far the biggest city under the control of the pro-Russian rebels. The battle for the city could be a decisive turning point in a conflict which has caused the biggest confrontation between Russia and the West since the Cold War.

An industrial metropolis with a pre-war population of nearly 1 million, the main rebel-held redoubt rocked to the crash of shells and gunfire over the weekend and heavy guns boomed through the night into Monday from the outskirts of the city.

Ukraine appears to be pressing ahead with its offensive, undeterred by the presence of what NATO says are some 20,000 Russian troops massed on the nearby border for a potential ground invasion.

Kiev has said in recent days that it succeeded in using diplomacy to prevent Russia from launching a ground invasion to protect the rebels under the guise of a humanitarian mission. Moscow announced on Friday it was ending war games in the area.

But NATO Secretary-General Anders Fogh Rasmussen said there was still no sign Russia had withdrawn the troops it had massed at the frontier, which prompted warnings from the West last week that President Vladimir Putin could be planning to invade.

Asked in a Reuters interview how high he rated the chances of Russian military intervention, Rasmussen said: "There is a high probability."

"We see the Russians developing the narrative and the pretext for such an operation under the guise of a humanitarian operation and we see a military buildup that could be used to conduct such illegal military operations in Ukraine," he said.

NATO believes any Russian humanitarian mission would be used as a pretext to save the rebels, who are fighting for control of two provinces under the banner of "New Russia", a term Putin has used for southern and eastern Ukraine where Russian is spoken.

Despite the presence of the Russian troops at the frontier, Kiev has pressed on with its advance, apparently calculating that Western pressure can deter Putin from invading.

On Monday, the Kremlin ruled out a unilateral humanitarian operation. Putin's spokesman, Dmitry Peskov, saidMoscow would only send humanitarian aid as part of an agreed international mission, words that could be read as an attempt to reassure the West and Kiev that Moscow is not planning an assault.

CITIES "CUT OFF"

Ukrainian military spokesman Andriy Lysenko told Reuters government forces had finally succeeded in cutting off the road between Donetsk and Luhansk, the other main rebel-held city, which is closer to the Russian border. Kiev and its Western allies say the route has been the principal means of supplying the rebels in Donetsk with weapons.

"The forces of the anti-terrorist operation are preparing for the final stage of liberating Donetsk," Lysenko told Reuters. "Our forces have completely cut Donetsk off from Luhansk. We are working to liberate both cities but it's better to liberate Donetsk first - it is more important."

The leader of the rebels in Donetsk, Alexander Zakharchenko, a local man who took over the leadership from a Russian citizen last week, said the fighters were considering mounting a counter attack against government forces in the next 2-3 days.

Lysenko said clashes took place in several parts of eastern Ukraine over the past 24 hours with six Ukrainian service members killed and big losses to the rebel side. Rebel losses could not be independently confirmed.

Municipal authorities in Donetsk said artillery shelling knocked out power stations in the city and hit a high-security prison, killing one inmate and allowing more than a 100 criminals to escape.

U.N. agencies say more than 1,100 people have been killed including government forces, rebels and civilians in the four months since rebels seized territory in the east and the government launched its crackdown. Kiev says 568 of its troops have been killed in combat.

Government forces have been advancing since June, pushing rebels into Donetsk and Luhansk, capitals of two provinces that the fighters have declared independent "people's republics".

Fighting in recent weeks has focused on the route linking the cities, near where Malaysia Airlines flight MH17 crashed in July, killing all 298 people on board. Washington says the plane was almost certainly shot down accidentally by rebels using an advanced Russian missile. Moscow denies this.

Fighting near the site forced the Netherlands to put off a mission to recover human remains and investigate the crash.

The rebels in eastern Ukraine have been led mostly by Russian citizens and field heavy weaponry Kiev and its allies say can only have come from Russia. Moscow denies aiding them.

"TIGHTENING THE RING"

The past week saw increasingly urgent warnings from Kiev and Western countries that Putin appeared to planning an invasion.

Western countries said Putin - who has whipped up the passions of Russians with a relentless nationalist campaign in state-controlled media since annexing Ukraine's Crimea peninsula in March - could invade to head off a humiliating rebel defeat.

But there have been signs in recent days that Moscow may be searching for another way to get out of the conflict, without being drawn into a ground invasion.

When the Russian citizen leading the rebellion in Donetsk abruptly stepped down in favour of local man Zakharchenko last week, many read that as a sign of potential de-escalation: Kiev has said it could contemplate negotiations with locals but would never talk to foreigners it calls international terrorists.

Donetsk is facing an increasing shortage of food, water and fuel. Few people are on the streets, apart from groups of armed separatist fighters. There is relatively little traffic, with petrol in short supply. Those who have not left for the countryside are staying indoors. Banks are closed and pensions and social allowances are not being paid.

Shelling on Monday from the direction of the international airport and the suburb of Yasynuvata to the north knocked out a string of power stations, the municipal authority said.

Lysenko, speaking to journalists, denied government forces had targeted the high-security prison for especially dangerous prisoners on the city's western outskirts, where the city authorities said one inmate was killed by shelling and more than 100 dangerous criminals escaped in an ensuing riot.

Though the Kiev government says it is tightening a cordon around the separatists in Donetsk, swathes of the east are still under rebel control including Luhansk and the towns of Horlivka to the north of Donetsk and Makiyivka to its east. The key rail and road hub of Krasny Luch between Donetsk and Luhansk is still outside government control, military sources in Kiev said.

Lysenko painted a picture of disarray in the rebels' ranks. "A mood of panic is gripping the Russian mercenaries. Some are deserting, others are disoriented, disillusioned and don't have a uniform strategy for conducting further combat," he said.

Western countries have imposed sanctions on Moscow, which, though initially mild, were tightened substantially after the downing of the Malaysian airliner.

Moscow replied last week with a ban on imports of all meat, poultry, dairy, fruit and vegetables from the United States, European Union, Canada, Australia and non-EU member Norway.

(Additional reporting by Richard Balmforth, Pavel Polityuk and Natalia Zinets in Kiev, Alexei Anishchuk and Lina Kushch in Donetsk, Writing by Richard Balmforth and Peter Graff, editing by Peter Millership)