The Ukrainian military confirmed its forces had withdrawn from the city of Lysychansk and evacuated all injured soldiers.
Lysychansk is the last bulwark of Ukrainian resistance in the Luhansk province, one of the two regions that make up the country’s eastern industrial heartland of Donbas.
Russian troops also control about half of Donetsk, the second province of Donbas. Russia formally recognized the self-proclaimed republics days before its February 24 invasion of Ukraine.
Meanwhile, a Ukrainian flag was raised on Snake Island, which Russia last week said had been given back to Ukraine as a gesture of “goodwill”.
Luhansk governor Serhii Haidai said Ukrainian forces retreated from Lysychansk to avoid being surrounded.
“There was a risk of Lysychansk encirclement,” Mr Haidai said, adding that Ukrainian troops could have held on for a few more weeks but would have potentially paid too high a price.
“We managed to do a centralized withdrawal and evacuate all injured,” he added. “We took back all the equipment, so from this point withdrawal was organized well.”
Ukrainian military said that it could not longer defend the city.
“The continuation of the defense of the city would lead to fatal consequences,” it said in a statement on Facebook. “In order to preserve the lives of Ukrainian defenders, a decision was made to withdraw.”
Mr Putin’s defense minister reported to him on Sunday that the Russian army and its separatist allies now hold all of the Luhansk region after taking “full control” of Lysychansk.
The General Staff of the Ukrainian military said Russian forces are focusing their efforts on pushing towards the line of Siversk, Fedorivka and Bakhmut in the Donetsk region.
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The Russian army has also intensified the shelling of key Ukrainian strongholds of Sloviansk and Kramatorsk deeper in the Donetsk region.
On Sunday, six people, including a nine-year-old girl, were killed in the Russian shelling of Sloviansk and another 19 people were wounded, according to local authorities. Kramatorsk also came under fire on Sunday.
An intelligence briefing on Monday from the British MoD supported the Ukrainian military’s assessment, noting that Russian forces will “now almost certainly” switch to capturing Donetsk.
The briefing said the conflict in Donbas has been “grinding and attritional”, and is unlikely to change in the coming weeks.
Russian President Vladimir Putin has made capturing the entire Donbas a key goal in his war in Ukraine, now in its fifth month.
Moscow-backed separatists in Donbas have battled Ukrainian forces since 2014 when they declared independence from Kyiv after the Russian annexation of Ukraine’s Crimea.
Russia’s invasion has also devastated Ukraine’s agricultural sector, disrupting supply chains of seed and fertilizer needed by Ukrainian farmers and blocking the export of grain, a key source of revenue for the country.
In its intelligence report, the MoD also pointed to the Russian blockade of the key Ukrainian port of Odesa, which has severely restricted grain exports.
It predicted that Ukraine’s agricultural exports would reach only 35 per cent of the 2021 total this year as a result.