* Rebel commander says separatists outgunned by govt troops
* Government forces say rebels refused to lay down arms
* Poroshenko says peace plan for east will be unveiled soon
Even as President Petro Poroshenko and his team prepared to unveil their blueprint for ending more than two months of rebellion, government forces, using artillery and heavy armour, said they were tightening the noose on separatists near Krasny Liman, north of the main regional hub of Donetsk.
Government forces said the fighting erupted in the early hours after rebels refused to lay down their arms as part of Poroshenko's peace plan.
Both Ukrainian government and rebel accounts of the fighting suggested a major battle involving armoured vehicles including tanks.
One military source said 4,000 separatists were involved, while rebels sources in Donetsk said Ukrainian infantry supported by 20 tanks and many other armoured vehicles were storming the village of Yampil, about 12 km (7 miles) east of Krasny Liman.
A top rebel commander, Igor Strelkov, reported "heavy losses" in equipment and arms among the separatists, faced with a huge superiority in heavy armour on the government side at Yampil.
"We beat off the first attack and destroyed one tank. But it is difficult to take on 20 tanks. The battle is going on. Our people are holding but we can't rule out that they (government forces) will break through," Strelkov, who is also known as Girkin, said in a videoed statement. He urged Moscow to "take some measures".
There was no word on casualties from the government side.
From the nearby town of Siversk, artillery blasts, small arms fire and machinegun-fire could be heard from about 3 km away. From high ground, smoke could be seen billowing from rebel positions under attack.
Poroshenko, installed as a president on June 7, is pushing a peace plan to end the rebellion which he said would be unveiled soon and presented to European Union ministers early next week.
It includes an offer of a unilateral ceasefire by government forces and amnesty for the separatists - but only if they lay down their weapons.
REBELS "REFUSED TO DISARM"
A government forces spokesman said on Thursday that it was when rebels refused a call to disarm - made in leaflets fired by big guns into rebel positions - that fighting broke out in the early hours of the morning.
"We issued an ultimatum to the terrorists overnight to surrender their weapons. We guarantee their safety and investigation in line with Ukrainian law ... They refused," said government forces spokesman Vladyslav Seleznyov.
"Now we are trying to narrow the encirclement. They are trying to break out," Seleznyov said.
Separatist rebellions erupted in eastern Ukraine in early April after street protests in Kiev toppled the Moscow-backed leader Viktor Yanukovich and Russia in turn annexed the Crimean peninsula. Eastern rebels have called for union with Russia.
The violence has cost the lives of 147 Ukrainian soldiers and wounded 267 up to now, the defence ministry said on Wednesday. Many scores of separatist militia, civilians and members of other military bodies such as the national guard have also been killed and the overall death toll is much higher.
Kiev has accused Russia of fomenting the unrest and of allowing volunteer fighters from Russia to cross into Ukraine to support the rebels.
This is denied by Moscow, which has been urging Poroshenko to end "punitive action" against the rebels.
The United States and its Western allies largely share Ukraine's view. U.S. Vice President Joe Biden assured Poroshenko late on Wednesday there would be "further costs on Russia" unless it used its influence to stop the separatist violence, the White House said.
NATO Secretary-General Anders Fogh Rasmussen meanwhile sounded a new alarm about Russia's possible intentions, saying that at least a few thousand more Russian troops were now on Ukraine's long eastern border.
"I consider this a very regrettable step backwards. It seems Russia keeps the option open to intervene further in Ukraine," he said in London.
"The international community would have to respond in a firm manner if Russia were to intervene further in Ukraine."
BOOST FOR POROSHENKO
In Kiev, Poroshenko received a boost when parliament resoundingly endorsed his nominations for three key posts including that of foreign minister.
Speaking to journalists later, he said he himself would sign an association agreement with the European Union on June 27 which will decisively shift Ukraine away from Russia's influence and rule it out from joining a Moscow-led customs union.
It was Yanukovich's sudden refusal last November to sign that pact and upgrade relations with Moscow that precipated his own ousting and Russia's annexing of Crimea, and sparked the worst crisis in Russia-West relations since the Cold War.
But Poroshenko knows he has to impress the West with his intentions of reaching a peaceful settlement to the eastern crisis by using minimum force. He said his new foreign minister, Pavlo Klimkin, would unveil his peace plan for the east on June 23 at a meeting of EU foreign ministers in Luxembourg.
Ukrainian forces, which lost 49 servicemen on June 14 when separatists brought down a military helicopter in Luhansk region, have been gradually tightening their encirclement of rebel positions to the south and east of Krasny Liman including the rebel stronghold of Slaviansk.
Olesya, a woman in Yampil, said Ukrainian forces had entered the village in armoured vehicles bearing the Ukrainian flag.
"There was fighting all night. Mines were flying over our heads. Planes flew over and we could hear heavy weapons. It's awful what is going on here," she said.
Sergei, a 45-year-old who was leaving the village of Zakitne by scooter, said people had been sheltering in cellars for days and his wife had already left because there was no food, electricity or gas.
He was now leaving because "there are homes on fire and dead people on the streets".
"There is an ongoing active phase of the ATO (anti-terrorist operation) in the region of Krasny Liman," said government forces spokesman Vladyslav Seleznyov
Asked about the report that 4,000 separatists could be involved, Seleznyov, the government forces spokesman, replied: "Then, there'll be 4,000 coffins".