Russia said on Saturday (local time) its troops had abandoned a key bastion in occupied eastern Ukraine, a stinging defeat that prompted one of President Vladimir Putin's most hawkish allies to call for Russia to consider resorting to low-grade nuclear weapons.

The fall of Lyman came just a day after Putin proclaimed the annexation of four Ukrainian regions - including Donetsk, where Lyman is located - and placed them under Russia's nuclear umbrella, at a ceremony that was condemned by Kyiv and the West as an illegitimate farce.

"In connection with the creation of a threat of encirclement, allied troops were withdrawn from the settlement of Krasny Liman to more advantageous lines," Russia's defence ministry said, using the Russian name of the town.

The statement ended hours of official silence from Moscow after Ukraine first said it had surrounded thousands of Russian troops in the area and then that its forces were inside the town of Lyman.

Ramzan Kadyrov, the leader of the southern Chechnya region who describes himself as a footsoldier of Putin, said he felt he had to speak out after the loss of the territory.

"In my personal opinion, more drastic measures should be taken, right up to the declaration of martial law in the border areas and the use of low-yield nuclear weapons," Kadyrov wrote on Telegram.

Other top Putin allies, including former president Dmitry Medvedev, have suggested Russia may need to resort to nuclear weapons, but Kadyrov's call was the most urgent and explicit.

Putin said last week he was not bluffing when he said he was prepared to defend Russia's "territorial integrity" with all available means, and on Friday made clear this extended to the new regions that Moscow has claimed.

Washington says it would respond decisively to any use of nuclear weapons and has spelled out to Moscow the "catastrophic consequences" it would face.

"WE'RE ALREADY IN LYMAN"

The Russian defence ministry's statement made no mention of its troops being encircled at Lyman, diverging starkly from Ukraine's version of events.

"The Russian grouping in the area of Lyman is surrounded," Serhii Cherevatyi, spokesperson for Ukraine's eastern forces, said hours earlier.

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He said that Russia had 5,000 to 5,500 troops at Lyman but the number of encircled troops could be lower because of casualties. He confirmed Ukraine was inside the town later that afternoon.

"We're already in Lyman, but there are battles," he said.

Two grinning Ukrainian soldiers taped the yellow-and-blue national flag on to the "Lyman" welcome sign at the town's entrance in Donetsk region's north, a video posted by the president's chief of staff showed.

"Oct. 1. We're unfurling our state flag and establishing it on our land. Lyman will be Ukraine," one of the soldiers said, standing atop a military vehicle.

Neither side's battlefield assertions could be independently verified.

LOGISTICS HUB

In his comments, Kadyrov launched a blistering attack on Colonel-General Alexander Lapin, the commander overseeing Lyman, who he derided as a "mediocrity". Kadyrov also said he personally had warned Russia's army chief, General Valery Gerasimov, of a looming disaster.

"The general assured me he had no doubts about Lapin's talent for leadership and did not think a retreat was possible in ... Lyman and its surroundings," he said.

Russia has used Lyman as a logistics and transport hub for its operations in the north of the Donetsk region. Its capture is Ukraine's biggest battlefield gain since a lightning counteroffensive in the northeastern Kharkiv region last month.

The Ukrainian military has said its capture would allow Kyiv to advance into the Luhansk region, whose full capture Moscow announced at the beginning of July after weeks of slow, grinding advances.

"Lyman is important because it is the next step towards the liberation of the Ukrainian Donbas. It is an opportunity to go further to Kreminna and Sievierodonetsk, and it is psychologically very important," Cherevatyi said.

Donetsk and Luhansk regions together make up the wider Donbas region that has been a major focus for Russia since soon after the start of Moscow's invasion on Feb. 24 in what it called a "special military operation" to demilitarise its neighbour.

Putin proclaimed the Donbas regions of Donetsk and Luhansk and the southern regions of Kherson and Zaporizhzhia to be Russian land in Friday's ceremony - a swathe of territory equal to about 18 percent of Ukraine's total surface land area.

Ukraine and its Western allies branded Russia's move as illegal. Kyiv vowed to continue liberating its land of Russian forces and said it would not hold peace talks with Moscow while Putin remained as president.

Retired US General Ben Hodges, a former commander of the US Army in Europe, said a Russian defeat in Lyman after Putin's declaration would be a major political and military embarrassment for the Russian leader.

"This puts in bright lights that his claim is illegitimate and cannot be enforced," he said.

It remained to be seen how Ukrainian commanders would exploit the rout, he said, adding it likely would further erode the morale of Moscow’s troops holding other Ukrainian territory.