Nine troops were killed in overnight fighting in the streets of a town neighbouring the rebel stronghold of Donetsk, a Ukrainian official said.
The government is battling to gain control of a major railroad and highway linking the area to Russia.
Government efforts to quell the pro-Russia insurgency in eastern Ukraine are focused on encircling Donetsk and driving rebels out of the city of Luhansk.
Andriy Lysenko, spokesman for the Ukrainian National Security Council, said nine soldiers of two volunteer battalions were killed in fighting in Ilovaysk overnight. Twenty-two were injured.
Volunteer battalions recruited from around Ukraine have proven essential in the government offensive against armed separatists in the mainly Russian-speaking east.
Fighting is continuing in Ilovaysk after more than a day of hostilities although government forces have gained overall control over the town, Mr Lysenko said. Ilovaysk lies on a major railroad and a highway which connects the regional capital of Donetsk to the Russian border to the south east.
The Kiev government has also pursued diplomatic efforts to resolve the conflict, which has killed more than 2,000 people and displaced 300,000.
The Ukrainian president hosts the German chancellor this weekend before meeting next week with Russia’s president in what could be the first meeting between the two leaders since June.