A statement released by Chancellor Merkel's spokesperson on Thursday said Merkel had used the conversation to call on President Putin to use his influence on pro-Russian separatists in Ukraine to release seven international observers. They have been held hostage since April 25.

"The German chancellor reminded President Putin of Russia's responsibility as an OSCE member state and called on the president to exert his influence," Christiane Wirtz said, referring the Organization for Security and Cooperation in Europe, for whom the observers were working when they were seized.

The observers of the Organization for Security and Cooperation in Europe (OSCE) being held come from a number of European countries, including Germany.

Ukraine election also discussed

The two leaders also discussed Ukraine's May 25 election, which the statement described as " crucial for the stability of the country."

President Putin used the conversation to demand that the Ukrainian army leave the south-east of the country. This, he said, was essential to stopping violence and a prerequisite for launching a national dialogue aimed at ending the crisis.

Earlier, Russian Foreign Minister Sergei Lavrov called for the OSCE to help facilitate talks between the Ukrainian government and what he termed its "opponents."

"The authorities in Kiev must take into account the responsibility they have, of the necessity for them to establish dialogue with our regions of the country, in particular the south-east," Lavrov tole reporters during a visit to Peru.

Over the past few weeks, pro-Russian separatists, who the West believes are being backed by the Kremlin, have seized government buildings in more than a dozen towns and cities in eastern Ukraine.

IMF bailout

The latest telephone conversation between Merkel and Putin to discuss the Ukraine crisis comes a day after the International Monetary Fund signed off on a $17 billion (12 billion euro) bailout package for Ukraine.

This paves the way for an initial payment of $3.2 billion to Ukraine, which finds itself in its worst financial crisis since gaining independence from the former Soviet Union in 1991.

pfd/ipj (AP, Reuters, dpa, AFP)