Russia says it has taken control of Soledar, in the Donetsk region of eastern Ukraine, following months of fierce fighting, state media reported on Friday.
Moscow said its forces took the salt mining town on Thursday evening and that this would enable it to cut off Ukrainian supply routes to the nearby city of Bakhmut.
However, Ukrainian authorities have denied the report, saying “severe” fighting was continuing on Friday.
“Our units are there, the town is not under Russian control,” Serhiy Cherevatyi, a spokesperson for Ukraine's eastern military command told Reuters by telephone.
Soledar is in Donetsk, one of four parts of Ukraine that Moscow annexed in September.
The town was home to a population of 10,000 before Russia launched its invasion in February 2022. It has since been reduced to rubble.
The town’s fall would mark a rare victory for the Kremlin after a series of battlefield setbacks in its invasion of Ukraine.
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“On the evening of January 12, the liberation of the city of Soledar was completed, which is important for the continuation of successful offensive operations” in the Donetsk enclave, Russia's Defence Ministry said.
Moscow is intent on winning full control of the area. Its paramilitary Wagner Group had earlier claimed to have taken control of Soledar.
However, Ukraine said earlier on Friday that its forces were still holding out in Soledar after a “hot” night of fighting, in what has become one of the bloodiest battlefields of the war.
Both sides have endured heavy losses in the battle for the small town.
Ukraine's deputy defence minister said earlier that Russia had “relocated almost all of its main forces to the Donetsk front” to ensure Soledar's capture.
“This is a difficult phase of the war,” Ganna Malyar conceded.
Moscow has been seeking its first major victory after half a year of humiliating retreats.
Kyiv says Russia is throwing wave upon wave of soldiers into a pointless fight for a bombed-out wasteland.
It comes days after a reshuffle of Russia's top brass, which saw the head of the General Staff, General Valery Gerasimov, named the new chief of Russian forces in Ukraine.
The former top commander there, Gen Sergei Surovikin, was demoted to Gerasimov’s deputy after only three months on the job.
Sean Bell, a retired air vice-marshal, told Sky News that the seizure of Soledar is the Russians’ “first victory for quite a while” and Moscow will be wary of allowing the Wagner Group to take credit for it.
Mr Bell said there is likely to be “a management of [Yevgeny] Prigozhin’s rise to fame” in Moscow, referring to the head of Wagner.
He said from a military perspective, he had expected Soledar to fall to invading forces.
“The challenge is that Russia looks like a spent force at the moment,” he said, referring to the army’s sluggish operation to take control of the entire Donbas region.
“It looks really unlikely that they’ve got the resources, the men, the material in order to do that. What it does do, it hints where Russia’s focus will be for a spring offensive.
“Expect this battle to continue,” he added.
If news of the capture is true, it will allow Russian forces to advance on Bakhmut, where fighting has been “house to house”.
Moscow will also be able to make use of Soledar's extensive network of salt-mine tunnels — the largest in Europe — to advance into Ukrainian-controlled territory.
But western officials said a Russian victory in Soledar, or even in Bakhmut, a city 10 times larger where the Russians have so far been repelled, would mean little for the overall trajectory of the war.
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“Even if both Bakhmut and Soledar fall to the Russians, it's not going to have a strategic impact on the war itself,” US National Security Council spokesman John Kirby told reporters at the White House. “And it certainly isn't going to stop the Ukrainians or slow them down.”
The Institute for the Study of War, a think tank in Washington, said that a Russian seizure of Soledar was “not an operationally significant development and is unlikely to presage an imminent Russian encirclement of Bakhmut”.
The institute said that Russian information operations have “overexaggerated the importance of Soledar,” a small settlement. It also argued that a long and difficult battle had contributed to the exhaustion of Russian forces.
De facto Nato
Meanwhile, Ukrainian Defence Minister Oleksii Reznikov said Ukraine had become a de facto member of the Nato alliance.
In an interview with the BBC, Mr Reznikov said he was confident Ukraine would receive weapons such as tanks and fighter jets.
“This concern about the next level of escalation, for me, is some kind of protocol,” he said.
Western countries including the US have been supplying armoured fighting vehicles and rockets to Ukraine, but have not yet sent heavier tanks, which Ukraine desperately wants.
Polish President Andrzej Duda has said Poland will donate a company of Leopard 2 tanks, which may mean a dozen or 14 vehicles.
But the German government said on Friday it has not yet received an official request from Poland or Finland to supply the Leopard main battle tank to Ukraine.
The spokesman said there are no concerns that Poland will deliver the Leopard tank to Ukraine without Germany's permission, which would be in violation of re-export rules.
Tobias Ellwood, chairman of the House of Commons defence committee in Britain, has urged London to supply Ukraine's forces with heavy battle tanks.
The UK is reportedly considering supplying Ukraine with Challenger 2 tanks.
“Nato essentially has been benched,” the former British army officer told the BBC on Tuesday.
“We should be doing far more to put this fire out and we're not doing that.”