* Moscow complains situation worse since Ukraine election
* Tense meeting of NATO-Russia council in Brussels
* Demand for U.N. resolution on end to violence
* Fierce battle rages all day in east
(Updates gas talks, fighting)
By Thomas Grove and Mark Trevelyan
DONETSK, Ukraine/MOSCOW, June 2 Russia and
Ukraine agreed on Monday to consider a proposal for Kiev to pay
off a multi-billion-dollar gas bill that has soured relations
between Moscow and Kiev, while fighting raged all day in eastern
Russia accused NATO of whipping up dangerous tensions near
its borders and encouraging Ukraine to use force against
pro-Russian separatists. At a tense meeting in Brussels, the
alliance urged Moscow to stop arming the rebels.
In Luhansk, at least two people were killed and several
injured in an explosion which separatists controlling the
eastern city said was the result of an air strike by the
This was denied by Kiev, which said it was caused by
separatists who had launched a heat-seeking rocket at a
Ukrainian plane but the missile had zeroed in instead on the
rebel-occupied regional administration building.
Ukraine and its Western allies accuse Moscow of fuelling the
pro-Russian uprising that threatens to break up the former
Soviet republic of 45 million people. Russia denies
orchestrating the unrest, and says Ukraine's attempts to end it
by military force are making the situation worse.
In an a sign of rapprochement, Russia's and Ukraine's gas
companies agreed to consider a plan for Kiev to pay off its
outstanding gas debts, including a proposal that should ensure
security of supply until June 2015, European Union Energy
Commissioner Guenther Oettinger said.
Earlier, in a conciliatory signal, Russia's Gazprom
had given Ukraine until June 9 to resolve the two
countries' long-running row over gas pricing, postponing a
threat to cut off supplies as early as Tuesday.
Following around six hours of talks in Brussels brokered by
the European Commission, Oettinger said the company chief
executives and their governments would now consider the
proposal. He said another round of three-way talks could take
place in the coming days
But two top Russian officials turned up the volume of Cold
War-style rhetoric in the worst East-West crisis since the fall
of Communism a quarter of a century ago.
Foreign Minister Sergei Lavrov said Moscow would submit a
draft resolution to the United Nations Security Council later on
Monday, calling for an immediate end to the violence in eastern
Ukraine and the creation of humanitarian corridors to help
civilians escape the fighting.
In pointed comments aimed at newly elected Ukrainian
president Petro Poroshenko, Lavrov said that Western nations had
assured Russia the situation in Ukraine would improve after the
May 25 election that brought him to power. Instead of that, he
said, "everything is happening in exactly the opposite way".
"People are dying every day. Peaceful civilians are
suffering more and more - the army, military aviation and heavy
weapons continue to be used against them," Lavrov told reporters
In Brussels, Russia's envoy to NATO accused the Western
alliance of exacerbating the crisis.
"We have noticed unprecedented NATO activity near Russia's
borders. It is excessive, inappropriate, and weakens stability,
security and predictability in the Euro-Atlantic region,"
state-run RIA news agency quoted Alexander Grushko as saying.
A NATO spokeswoman said alliance members called on Russia
"to stop the flow of arms and weapons across the border, to stop
supporting armed separatists in Ukraine and to withdraw in a
full and verifiable manner their troops from the Ukrainian
Russia denies arming the rebels or orchestrating the unrest,
although increasing numbers of Russian fighters have been seen
on the separatist side.
President-elect Poroshenko and Ukraine's pro-Western
government have defied Moscow's repeated calls for an end to
what Kiev calls its 'anti-terrorist' operation against armed
separatists in the eastern Donetsk and Luhansk regions, who want
to follow the example of Crimea by splitting from Ukraine and
Poroshenko is due to be inaugurated on Saturday and will
immediately face an array of crises, including the new deadline
in the gas dispute.
Since the overthrow of pro-Russian Ukrainian President
Viktor Yanukovich in February, Russia has demanded a sharp
increase in the price Ukraine pays for gas. Kiev says it cannot
afford it and wants the discounted price it negotiated in the
While the dispute has dragged on, Gazprom has continued
billing Kiev at the higher rate. It says Ukraine already owes it
more than $5 billion in unpaid bills and is running up more debt
at a rate of more than $1 billion per month.
But after Kiev paid off $786 million of its gas debt,
Gazprom announced a six-day extension of the deadline until June
9. Gazprom also said that it would not sue Ukraine's gas
supplier Naftogaz over unpaid bills during the coming week.
The dispute has wider energy implications for Europe, which
gets a third of its gas needs from Russia, and almost half of
these supplies via Ukraine.
Despite a pullback of some of the tens of thousands of
Russian troops on the border with Ukraine, violence increased in
the east of the country at the start of last week, with dozens
of pro-Moscow rebel fighters killed in a government assault.
Many were Russians, whose bodies were sent back across the
In Monday's fighting, Ukrainian security sources said a
force of separatists had occupied the upper floors of an
apartment block and were shooting into the border post on the
southern edge of Luhansk, a city very close to the frontier with
A separatist fighter, Alexander Gureyev, said a Ukrainian
fighter plane had shot at the regional administration building.
"There are dead and injured in the city," he said.
The Russian Foreign Ministry also said there had been an air
strike in Luhansk. "The authorities in Kiev have committed
another crime against their own people," a statement on the
ministry's website said.
Interfax-Ukraine news agency quoted a health official as
saying that an explosion in the building had killed two people.
Ukrainian authorities denied they had conducted an air strike.
(Additional reporting by Tom Miles in Geneva; Vladimir
Soldatkin, Steve Gutterman and Katya Golubkova in Moscow, nd
Richard Balmforth in Kiev and Barbara Lewis in Brussels; writing
by Mark Trevelyan; editing by Philippa Fletcher and Giles