Prime Minister Arseniy Yatsenyuk announced today that his government will impose collective punishment on the population of the eastern territories by freezing budget subsidies for the region.

The decision will worsen already grievous economic conditions there.

Industrial operations in the economically depressed but coal-rich east have relied heavily on state subsidies for many years.

Mr Yatsenyuk said that £1.6 billion will be held back from rebel-held areas in the Donetsk and Lugansk regions, giving no indication of what time period that subsidy figure represented.

He added that payment of pensions and benefits to residents in the east will resume only after anti-fascist resistance forces have surrendered there. The government has not been paying pensions in those areas for several months, promising that back payments will be paid when the rebels move out.

"The money we pay into those territories today does not get to the people but is stolen by Russian bandits and this would be nothing but directly supporting Russian terrorism," said Mr Yatsenyuk.

He insisted that gas and electricity from government-held regions would continue to be supplied, saying: "Those are our citizens and the government will not allow these people to freeze, as this would lead to a humanitarian catastrophe."

The recently re-elected leaders of the Donetsk and Lugansk people's republics accused Ukrainian President Petro Poroshenko today of scrapping a deal aimed at halting months of war.

They were responding to Mr Poroshenko's call to cancel partial autonomy granted to two eastern regions as part of a ceasefire agreement.

Alexander Zakharchenko and Igor Plotnitsky insisted jointly that it was Mr Poroshenko's "unilateral" ending of special status that "essentially put a line through the Minsk agreement."

The president also said that additional troops were being deployed to the east to defend cities still under government control against possible incursions.

Two teenage boys were killed by an artillery shell as they played football at their school in a village near the city of Donetsk.

• Russian state-owned gas giant Gazprom confirmed receipt yesterday of $1.54bn (£0.96bn) from Ukraine's Naftogaz as the first instalment of a $3.1bn (£1.94bn) payment of debt for gas dating back to late last year.