SOKILNYKY, Ukraine -- Hours after a new peace initiative for Ukraine began taking shape, mortar shells rained down Thursday on the centre of the main rebel-held city in the east, killing at least 13 people at a bus stop.

The deaths in Donetsk sparked wrath and grief that was swiftly exploited by pro-Russian rebel leaders, who paraded captive Ukrainian troops through the city to be punched, kicked and insulted by enraged residents.

Diplomats from Russia, Ukraine, France and Germany had met in Berlin a day ago to thrash out a tentative dividing line from which the warring sides would pull back their heavy weapons. That solution already looks doomed.

Fighting in eastern Ukraine is now fiercer than ever in some locations, NATO's top commander in Europe, U.S. Air Force Gen. Philip Breedlove, said Thursday in Brussels. He added that weapons systems seen now in the region have in the past heralded a fresh incursion by Russian troops.

The United Nations Security Council condemned the killings "in the strongest terms" and "underlined the need to conduct an objective investigation and bring perpetrators of this reprehensible act to justice."

In a statement approved by all 15 members, the council also welcomed Wednesday's new peace initiative and underlined the need to fully implement a September cease-fire agreement.

It is far from clear who fired Thursday's deadly mortars and both sides accused the other.

Separatist leader Alexander Zakharchenko said the front line will now be pushed back away from the fringes of Donetsk to avoid any similar attacks, which he blamed on Ukrainian troops.

Ukraine's Defence Ministry countered that the stricken area was 15 kilometres (9 miles) from the nearest government position and that artillery that struck was likely launched from within rebel territory.

In Kyiv, President Petro Poroshenko appeared to be holding out hope for a new cease-fire, but said stern retribution would await anybody violating the peace.

"If the enemy doesn't want to abide by the cease-fire, if he doesn't want to put an end to the suffering of peaceful people, Ukrainian villages and town, we will smash them in the teeth," Poroshenko told a meeting of top defence officials.

Russia has always denied providing arms to separatist forces but Western military officials say the quality of the heavy weapons the rebels have means they could only come from Moscow.

The shells that fell on Donetsk killed trolleybus passengers and people waiting at a stop nearby. People sobbed as they looked on at the blood-spattered bus and the bodies strewn across the road.

Before all the bodies could be cleared, rebel militiamen dragged a captive Ukrainian soldier before the angry crowd. Some residents punched and kicked the soldier, who was quickly bundled into a waiting car by rebels as the crowd pursued them.

Later, more than a dozen other Ukrainian soldiers were forced to walk two-by-two to where the residents were killed as people in the crowd screamed "Fascists!" and "Killers!"at them.

The civilian death toll has been mounting steadily in the conflict between Ukrainian troops and Russian-backed separatists that the United Nations says has killed more than 4,700 people since April.

The separatist-run Donetsk News Agency cited unnamed officials as saying the shells were fired from a portable 82-millimeter calibre mortar and that a "raiding party" was responsible. That suggested the mortars were launched within the city, as claimed by Ukrainian officials. Zakharchenko, however, later said the shells were fired from a town outside Donetsk.

Fighting surged last weekend for control over Donetsk's war-wracked airport, which Ukrainian forces have all but abandoned after months of bitter battles.

Ukraine's Defence Ministry said six soldiers died in fighting at the Donetsk terminal, part of 10 soldiers killed across eastern Ukraine on Wednesday. Sixteen Ukrainian troops were taken prisoner at the airport --they were then paraded in Donetsk.

Negotiations in Berlin on Wednesday concluded with an agreement to uphold a demarcation line defined in September after peace talks in the Belarusian capital, Minsk. Under the Berlin plan, Ukrainian troops and Russian-backed separatists are to pull back their heavy arms 15 kilometres (9 miles) on either side of the line, though there was no agreement on a withdrawal of troops.

But the United States, which backs Ukraine, says the separatists' capture of Donetsk airport already violates that boundary.

Separatist militias were also pressing to extend their territory northwest of the second largest rebel-held city, Luhansk.

Fighting there Thursday centred on a strategic hilltop between the villages of Krymske and Sokilnyky known as Checkpoint 31. An AP reporter in the area saw that rebels had captured the checkpoint, which was coming under sustained artillery fire by Ukrainian forces.

Most homes in rebel-held Sokilnyky showed signs of damage and all the residents have fled to avoid the fighting. Separatist fighters moved between Sokilnyky and Checkpoint 31 by cautiously crawling along the ground.

The separatists appeared to have a formidable array of arms. An AP reporter on Wednesday saw nine Gvozdika self-propelled howitzers and six anti-tank cannons being deployed toward the area. Rebels also have large numbers of Grad multiple rocket launchers.

The commander of a rebel unit fighting over Checkpoint 31 reacted angrily to suggestions of any peace deal and said more territorial advances lay ahead.

"No cease-fire! If they come, they have to die. We'll push them away," said the commander, who gave only his nom de guerre, Sever, which is Russian for "north."