Polling stations have opened in a hastily organised referendum in eastern Ukraine that will ask voters whether they want to create a quasi-independent statelet from the Luhansk and Donetsk regions of Ukraine, as violence and chaos have plunged the east of the country into what increasingly resembles the beginning of a civil war.

Early in the morning, huge queues were visible in the few polling stations open in the southern port city of Mariupol, scene of the most recent violence.

"I want to be independent from everyone," ex-factory worker Nikolai Cherepin told AFP. "Yugoslavia broke up and they live well now."

Tatiana, a 35-year-old florist voting in the regional hub of Donetsk, said: "We have come to fight for our rights and become independent and we are happy that we've been given the right to voice our opinion.

"If we're independent, it will be hard at the beginning but it will be better than being with the fascists," she added, using a term frequently used by separatists to describe the Western-backed government in Kiev.

At least seven people died Mariupol on Friday when the Ukrainian army entered the city in armoured vehicles, apparently to regain control of the city's police HQ, where separatist fighters were exchanging fire with barricaded police. The assault ended with the police building burning to the ground, deaths on both sides and a hasty retreat through the city, when unarmed civilians were shot at by Ukrainian forces.

Ukraine's interior minister, Arsen Avakov, said that 20 "terrorists have been destroyed" in the operation, but investigation at local hospitals suggested a lower death toll, perhaps even in single figures. At least one policeman died. The head of the traffic police in the city, Viktor Sayenko, also died from bullet wounds, according to an official statement, which gave no details except that he died "carrying out his official duties". The exact circumstances of the violence were extremely hard to determine, as the town was convulsed with anger and fury and rumours circulated like wildfire.

On Friday, there was mob rule in the city centre as shops and businesses were looted. A hunting shop was targeted for its weapons, while mobile phone shops were simply too strong a temptation to ignore, with the police gone from the city. An armoured personnel carrier abandoned by the Ukrainian army due to engine trouble was set on fire. A man scrambled atop the carrier as firemen worked to put out the blaze and screamed: "This is the Donetsk people's republic! We will destroy the Kiev junta and the Euro-gays! We will win!"

At a local police station on Saturday, the doors were locked and a group of people were ringing the bell with little success. One man had come to report that his car had been smashed up, while another said his grocery shop had been looted during the night.

There was no visible police presence on the streets on Saturday, but their loyalties appear key to understanding the violence that broke out.

The Observer talked to four police officers who said that the army had initially entered the city at the request of police who had been trapped on the third floor of the building after armed separatists broke in and demanded that they side "with the people".

Three of the police sources said that the attack from separatists on the police station came unprovoked, while one claimed that the police had orders to clear the town hall, which had been occupied for the past week, of separatists. Through a mole in the police, the separatists had decided to take a pre-emptive strike and seize the police station.

Whatever the cause, the police barricaded themselves on the top floor and called for help as a firefight broke out. At some point a high-ranking officer was thrown from the third-floor window, but who threw him out and whether he survived remains unclear. "Of course, there are splits in the police too," said one senior officer. "Everyone here is scared, and it will be hard to keep everyone working."

Some officers have left the force in recent weeks, uneasy about orders to take action against the separatist militias. In many towns in the region the police have attempted to preserve an uneasy neutrality; in some places they have fully deserted to the side of the separatists.

In one of Mariupol's hospitals, there were three members of pro-Ukrainian forces who had been injured in the fighting. Two were in intensive care while one was recovering from a bullet wound to the thigh. Hesaid he had been shot during the clashes at police headquarters. He said he was from the interior ministry troops and had arrived in the town after a request for help had been made by the police.

In Mariupol, the presence of Ukrainian armoured vehicles in the city centre on victory day on Friday was seen as an extra provocation. Moscow and local separatists have called the Kiev government "fascist" and drawn parallels between the second world war victory and the current conflict.

In the process the word "fascist" has lost most of its meaning, but the comparison has proved a powerful rallying cry. The police station in Mariupol was the building used by the Nazis as the forced labour exchange when the city was occupied during the war, and its exterior bears a plaque as a memorial to the victims of fascism. The widespread belief among many local people is that the police have gone fully over to the side of the separatists, and the army had come in to carry out a punitive operation against the police. "I saw them drive past, I saw their faces," said 29-year-old Roman. "They are not humans, they are animals, fascist animals. I am ready to wring their necks with my own hands."

Tatyana Logacheva, 52, said she had given her shawl to a youth making Molotov cocktails, as he was short of fabric to use as the fuse. "Ukraine is not a real country, Ukraine is a microscopic dot on the map," she said. "This here is Russian land, and they have tried to steal our land from us and our language, but we will not give it up easily."

In a sign of how high tensions are running, shortly after giving the interview she was accosted by another woman, who told her that she should not speak to western journalists as they would twist her words. The woman began assaulting her with a handbag, and three other women joined in the attack with punches and kicks, before they were broken up by a group of men.

There are many in Mariupol and across eastern Ukraine who are horrified by the armed uprising; some of them are ethnic Ukrainians, others are simply middle-class professionals or intellectuals and fear that events here could slip into anarchic violence. Although they try to keep quiet in the current atmosphere, supporters of Ukrainian unity are numerous.

Nevertheless, Kiev's labelling of those seizing buildings here as "terrorists" has not helped to calm tensions, and the Ukrainian government appears to be in denial that increasingly large swaths of the population are backing the resistance movement, spurred on by the Russian media and the rumour mill, and increasingly by the bloody death toll from Kiev's "anti-terror" manoeuvres.

These are the circumstances in which the town, and the rest of the region, is holding the referendum that will ask whether people want to set up a Donetsk people's republic. The question uses a Russian word, samostoyatelnost, that could mean independence or could mean slightly less. It is possible that the de facto authorities are wheeling back from demanding full independence after Russian president Vladimir Putin's words last week that the referendum should be postponed, or after messages conveyed privately that Russia is not ready to offer open military support or absorb the territory "Crimea-style".

"We are not separatists, this is not about secession, this is about more autonomy," said Roman Lyagin, head of the electoral commission of the self-proclaimed republic. "Afterwards we can then decide how we want to live – with Ukraine, independently, or with Russia."

He added that personally he favoured the latter option. Most residents of the region seem to think they are indeed voting on independence, however, and this view is reinforced by billboards that tell people to "make the right choice" between fascist Ukraine or a prosperous Donetsk republic.

"I've deliberately done something that could get me 15 years in prison, because it's the only option to avoid war," said Lyagin, formerly a political consultant, on why he believes the referendum has to go ahead. He said that the entire budget for the referendum had been 20,000 hryvnia (£1000), which included photocopier ink, petrol to deliver ballot papers, and pens.

The referendum ballots are printed on ordinary white paper, there are no observers, and in some areas urns will be carried door-to-door for voting. Lyagin admits that the organisation is "not perfect", but says in the circumstances it was the best they could do.

In Kiev, interim president Oleksandr Turchynov said that the referendum was illegal, and that voting "yes" would be "a step into the abyss" for the east of the country.