Ukraine rebel city says holding international observers

(Reuters) - Armed pro-Russian separatists in the eastern Ukrainian city of Slaviansk were holding a group of international observers on Friday, saying they had found a Ukrainian spy travelling with them.

"They are with us in Slaviansk," the de facto mayor of the city, Vyacheslav Ponomaryov, told Reuters in front of the seized security service building where, according to the Ukrainian government, the observers were being held.

"What the situation was I do not know," he said. "It was reported to me that among them (the observers) was an employee of Kiev's secret military staff."

"People who come here as observers bringing with them a real spy: it's not appropriate." Later, a man in a mask and camouflage fatigues said there would be no more comments on Friday evening.

The detention of the observers, who are working for the Vienna-based Organization for Security and Cooperation in Europe (OSCE) will heighten Western concerns about lawlessness and arbitrary rule in separatist-held parts of eastern Ukraine.

It may also increase Western leaders' pressure on Moscow, which they accuses of backing the militias. The Kremlin denies interfering in eastern Ukraine.

Swedish Foreign Minister Carl Bildt wrote on his Twitter account: "Extremely concerned with OSCE inspectors being abducted in a Eastern Ukraine. Including one Swede. They must be released immediately."

Slaviansk is the biggest flashpoint in an armed uprising in eastern Ukraine that has widened into the worst stand-off between Russia and the West since the end of the Cold War.

MULTINATIONAL GROUP

Earlier, the German foreign ministry in Berlin said it had been unable to contact a German-led group of international military observers on a mission in the city.

The group comprised three German soldiers, a German translator, and military observers from the Czech Republic, Poland, Sweden and Denmark, a spokesman for the ministry in Berlin said.

The interior ministry in Kiev said the group that had been detained included 7 OSCE representatives and five members of the Ukrainian armed forces who were accompanying them.

"At the moment, talks are going on with representatives of pro-Russian forces. They have refused to free the hostages, saying they want to speak to "competent organs" of the Russian Federation," the Ukrainian interior ministry spokesman said.

Slaviansk, a city of around 130,000, has been for two weeks under the control of separatists who, like similar groups elsewhere in eastern Ukraine, oppose the central government in Kiev after the overthrow of a Kremlin-backed president.

Government forces said on Friday that they were gradually tightening a blockade on the city in an "anti-terrorist operation" that was relaunched earlier this week.

The separatists there have also been holding several journalists, although they released one of them, a U.S. citizen, on Thursday.

Russia says the pro-Russian militias are a spontaneous protest against a government in Kiev which it says is illegitimate, has far-right links, and has committed a crime by using the army to put down the revolt.

Several of the separatists manning checkpoints on the edge of the city have been killed in raids by defense and interior ministry forces from the Western-backed government in Kiev.

(Additional reporting by Pavel Polityuk in Kiev; writing By Richard Balmforth; editing by Christian Lowe and Philippa Fletcher)