MOSCOW (AFP) - Western powers on Wednesday launched a desperate last-gasp drive for a diplomatic solution to stop Ukraine sliding into civil war, as fighting spread closer to the Russian border.

The head of the Organisation for Security and Cooperation in Europe (OSCE), Swiss President Didier Burkhalter, was to meet Russian leader Vladimir Putin after Moscow quashed a German-led plan for new peace talks. And Britain's Foreign Secretary William Hague held talks in Kiev, as the Western-backed government there stepped up its military offensive to seize back a string of eastern towns and cities under the control of pro-Russian gunmen.

On the ground, local media reported that Ukrainian security forces had "liberated" the town hall in the port city of Mariupol near the Russian border. Explosions and gunfire were also heard overnight in the flashpoint eastern town of Slavyansk, an AFP reporter there said, as the military advanced on rebel-held positions in the centre of what has become a hotbed of separatist activity.

Authorities there claim to have killed more than 30 rebels in a relentless assault on the city. But they have also lost at least nine personnel and three helicopter gunships in the battle with well-armed separatists. The Russian flag that used to fly over the town hall has been taken down and rebels said they could either stay in the barricaded building they have held for several weeks or abandon it as the situation demands.

Nearly 90 people have died in less than a week in military operations or clashes between pro-Russians and supporters of Ukrainian unity, leading French President Francois Hollande to warn of "chaos and the risk of civil war". Germany too has said it fears an all-out military conflict, as Mr Putin weighs whether to launch an invasion with the estimated 40,000 troops he has stationed on the border.

With relations between Moscow and the West plumbing depths not seen since the end of the Cold War, the United States and Russia continued to trade barbs as the clock ticked towards an independence referendum planned in eastern Ukraine on May 11. US Secretary of State John Kerry dismissed the vote as "bogus" and drew parallels with a referendum in Crimea that was annexed by Russia in March.

"This is really the Crimea playbook all over again, and no civilised nation is going to recognise the results of such a bogus effort," Mr Kerry told reporters. "We flatly reject this illegal effort to further divide Ukraine."

The West accuses Russia of stoking tension to destabilise the former Soviet republic ahead of planned presidential elections on May 25 - which Moscow says would be "absurd" to hold amid the current unrest. Both Ukraine and Russia accuse each other of "fascism" amid fears of fresh violence on Friday when the two countries prepare to mark the Soviet victory in World War II.

Mr Putin will oversee a display of Russia military might in the iconic Red Square while celebrations will be more muted in Kiev amid fears of pro-Russian "provocation". Russian Foreign Minister Sergei Lavrov was quoted as saying on Wednesday that "Europe has been turning a blind eye to how fascism has been gaining new supporters".

He demanded a full investigation into the deaths of 42 people in the southern city of Odessa on Friday, most of them pro-Russian militants who died in a horrific building fire as they traded petrol bombs with pro-Kiev demonstrators. "What happened in Odessa on May 2 is pure fascism," said Mr Lavrov.

OSCE chief Burkhalter has urged a ceasefire on the ground to allow elections to take place as diplomats scramble to resuscitate a peace deal clinched last month that called for armed groups to abandon their positions in the east.

Speaking after a meeting with around 30 European foreign ministers in Vienna on Tuesday, Mr Lavrov said a second peace meeting would be a waste of time without also including the separatists.

The West has warned Moscow it will step up sanctions on Russia's recession-threatened economy if it continue to sow chaos in its western neighbour. US President Barack Obama has warned the sanctions will be broadened to include whole sections of Russia's economic activity. US sanctions against Moscow over the escalating unrest have taken a toll on the Russian economy, Mr Daniel Glaser, the US Treasury assistant secretary for terrorist financing, told a hearing in Congress.

The limited sanctions so far in place have stimulated a heavy capital flight from Russia, hobbled a bank close to Putin and taken economic growth to near zero, he said.