A pro-Russian activist aims a pistol at supporters of the Kiev government during clashes in the streets of Odessa. Picture: Yevgeny Volokin

Slavyansk, Ukraine - The US threatened Friday to hit Russia with devastating new sanctions within three weeks if it continued its “destabilisation” of Ukraine, where authorities struck pro-Moscow rebels and violence spread to the south in the bloodiest day since Kiev's Western-backed government took power.

Intensifying the war of words that has characterised the months-long crisis, Obama threatened to expand punitive sanctions to broad sections of the Russian economy if Moscow continued to foment chaos in the former Soviet Republic ahead of planned May 25

presidential elections.

“If in fact we see the disruptions and the destabilisation continuing so severely that it impedes elections on May 25, we will not have a choice but to move forward with additional... severe sanctions,” Obama said at a joint news conference with German Chancellor Angela Merkel.

“If Russia continues on its current course, we have a range of tools at our disposal, including sanctions that would target certain sectors of the Russian economy,” Obama said.

Previously the administration has said such measures would only come into force if Russia sent its estimated 40,000 troops on the border into Ukraine.

As Obama was speaking, an emergency meeting of the UN Security Council took place at Russia's request, to complain about the Ukraine's army's assault on the flashpoint town of Slavyansk that claimed at least seven lives.

The Kremlin said the raid was “leading Ukraine towards catastrophe” and pronounced dead a peace deal struck in Geneva last month to ease the worst East-West confrontation since the Cold War.

Russian Prime Minister Dmitry Medvedev urged the western-backed leaders in Kiev to “stop killing their citizens,” saying the raid was “a sign of criminal helplessness”.

Ukraine's interim president Oleksandr Turchynov said “many rebels” had been killed in the military's pre-dawn raid on the eastern town of Slavyansk and confirmed the loss of two servicemen after insurgents shot down two helicopter gunships.

Rebels later said three of their number and two citizens were killed in what they said was a “full-scale attack”. They vowed to defend the town, which has become the epicentre of tensions in increasingly volatile eastern Ukraine.

Kiev said its military overran nine rebel checkpoints and scores of soldiers, backed by armoured vehicles and helicopters, appeared to entrench their positions, tightening their encirclement of the flashpoint town.

The attack seemed to dash hopes of a quick release of seven European monitors being held in Slavyansk, with one senior rebel leader saying it would result in a “delay”.

Deepening the day's violence, three people were also killed in the south, in the port city of Odessa, where pro-Russian militants clashed with 1,500 people holding a rally for Ukrainian unity.

As tensions mount, Turchynov has reintroduced conscription and ordered his military on “full combat alert” amid fears of a Russian invasion.

Interior Minister Arsen Avakov said on his Facebook page that rebels used shoulder-launched missiles to down the helicopters.

“It's a real battle we are waging against professional mercenaries,” he wrote.

“Our demands for the terrorists are simple: release their hostages, lay down their arms, leave administrative buildings and restore the normal functioning of the urban infrastructure.”

The self-proclaimed pro-Russian mayor of the town, Vyacheslav Ponomaryov, urged “women, children and pensioners to stay in their homes” and “all armed men to help” combat the assault.

“We will defend the town and we will win,” the mayor, dressed in camouflage uniform and wearing a bulletproof vest and helmet, said in a video posted on a local website.

Central Slavyansk itself remained relatively calm after a heavy storm, although rebels parked two previously captured armoured vehicle in front of the town hall where the rebels are holding the seven European OSCE monitors they seized on April 25.

Russia's foreign ministry said Ukraine's use of its army was a “crime... leading Ukraine towards catastrophe”.

And Russian news agencies quoted Putin's spokesman as saying the raid was “essentially finishing off the last hope for the feasibility of the Geneva accord”.

Russia's envoy to the OSCE, Andrei Kelin, said Moscow had urged the pan-European body to “take steps to stop this reprisal raid,” according to the ITAR-TASS news agency.

Kelin said the situation of the seven OSCE monitors had become “more complicated” after the raid and that they had been transferred to a “safe place”.

For his part, Obama reiterated demands that Moscow, which has an envoy in eastern Ukraine to negotiate their release, use its influence over the rebels.

Meanwhile, in Warsaw, Russian Energy Minister Alexander Novak told reporters that state-run gas firm Gazprom could restrict supplies to Ukraine Ä and by extension several European countries Ä if Kiev did not pre-pay its bill for June by the end of this month.

Kiev is expected to use part of a $17-billion loan from the International Monetary Fund, announced on Wednesday, to settle the bill.

The unrest in Ukraine started with peaceful demonstrations in Kiev in November against pro-Kremlin president Viktor Yanukovych but has rapidly degenerated into a full-blown global crisis.

After a deadly crackdown on protesters, Yanukovych was forced out in February and replaced with the Western-backed administration. That sparked fury in Moscow, which responded with a blitz annexation of Crimea.

The pro-Russian rebels, who have been steadily taking more ground in the east, vow to hold their own Crimea-style “referendum” on independence on May 11.