Pro-Russian rebels in eastern Ukraine claim they have nearly encircled government forces in a strategic town.

Eduard Basurin, a rebel military leader, said the highway linking the town of Debaltseve to other government-held areas had fallen into rebel hands.

Ukrainian military spokesman Andriy Lysenko confirmed Debaltseve is surrounded on two flanks and is being heavily targeted with Grad multiple-rocket launchers.

Other officials denied government forces were close to surrendering and said separatist claims were exaggerated.

Debaltseve, which straddles a key road junction between the rebel-held provincial capitals of Donetsk and Luhansk, is one of several sites of fighting that has intensified in recent weeks in what the White House has described as a "Russian-backed offensive" by the separatists.

Kyiv and the West says rebel attacks violate a cease-fire deal signed in September in the Belarusian capital, Minsk, and decrease the chances of ending a conflict that has killed more than 5,000 people since April.

Basurin said the terms of the Minsk agreement are no longer in force.

The offensive targeting Debaltseve came after a senior separatist leader said on January 23 that the rebels would seek to seize more ground in the Donetsk and Luhansk regions and rocket attacks from rebel-held territory killed at least 30 people in the strategic port city of Mariupol on January 24.

WATCH: Ukrainian soldiers in the Luhansk region say they have come under heavy fire from pro-Russian separatists, who are reported to be gaining ground. In the town of Stanytsya Luhanska, thousands of residents have fled their homes as shells and tank fire hit residential areas. (By Levko Stek of RFE/RL's Ukrainian Service)

EU foreign ministers meet in Brussels on January 29 to discuss whether to extend current sanctions against Russia for its actions in Ukraine and whether to approve more such punitive measures in light of the flare-up in fighting.

Polish Foreign Minister Grzegorz Schetyna told state broadcaster TVP Info on January 29 that "there should be further" sanctions against Russia.

"Russia has to draw conclusions. It has to realize that it faces the united, unanimous stance of the whole world," he said.

However, diplomats told RFE/RL that Greek objections had blocked consensus at a preparatory meeting on January 28, and ambassadors will gather again before the foreign ministers' meeting to try to hammer out agreement.

The office of new Greek Prime Minister Alexis Tsipras this week complained that it was not consulted about EU leaders' January 27 statement calling for further "restrictive measures" against Russia.

Analysts say the new leftist Syriza-led government is more sympathetic to Moscow.

Recently leaked e-mails reveal Syriza's ties with Kremlin-connected anti-Western ideologue Aleksandr Dugin and Russian tycoon Konstantin Malofeyev, who is believed to have bankrolled much of the separatist movement in Ukraine.

Kyiv and NATO say Russia has sent weapons and troops to help the rebels, who control large parts of the Donetsk and Luhansk regions.

Western analysts believe that at a minimum, Russian President Vladimir Putin plans to use influence on the rebels-held areas to destabilize Ukraine and undermine its pro-Western government for years to come.

There are also fears the separatists could try to take Mariupol, drive further west, and create a "land bridge" linking Russia with the Crimean Peninsula, which Moscow illegally annexed from Ukraine in March.

U.S. Vice President Joe Biden said Russia must face increasing penalties unless it changes course on Ukraine.

Biden spoke by phone with Ukrainian President Petro Poroshenko on January 28.

Biden says Russia is blatantly disregarding its obligations under the Minsk agreement.

The White House said Biden and Poroshenko also discussed how the separatists' actions are taking a heavy toll on Ukraine's civilian population.

Moscow blames the recent flare-up in fighting on Kyiv, but the White House described rebel advances as a "Russian-backed offensive."

The ongoing unrest has dealt a serious blow to Ukraine's economy as a whole.

In Kyiv, Ukrainian Finance Minister Natalie Yaresko said the United States has provided Ukraine with $2 billion in loan guarantees and is promising a further $1 billion following the implementation of reforms.

Yaresko made the announcement after meeting on January 28 in Kyiv with U.S. Treasury Secretary Jack Lew, who commended what he called Ukraine's commitment to taking "difficult steps to unleash Ukraine's economic potential."

"The loan guarantees are provided so Ukraine could handle its social spending and protect those who will suffer from the negative impact that the reforms might have," Lew said.

Ukraine President Petro Poroshenko has said Ukraine will need $15 billion worth of international assistance over the coming two years.

With reporting by RFE/RL’s Rikard Jozwiak in Brussels, RFE/RL’s Ukrainian Service, RFE/RL's Robert Coalson in Prague, and Reuters