Russian-backed rebels on Wednesday halted the operations of the first Ukrainian company after an ultimatum expired to end a trade blockade between the two foes.

Protesting Ukrainian war veterans and opposition lawmakers have blocked rail freight traffic between government and rebel territory since January to stop the insurgents from receiving the cash they get in trading with Kiev.

The situation has riled Ukraine's pro-Western government as it has cut off access to a specific type of coal produced only in the east that it requires.

But the activists accuse the authorities in Kiev of allowing the trade to indirectly fund rebels in a 34-month war that has claimed more than 10,000 lives and continues to grind on.

The insurgents on Monday warned they would start taking over Ukranian-owned companies that still operate in their part of the war zone if the rail strike was not ended by Wednesday.

The first person to suffer from the threat was Ukraine's richest man. Rinat Akhmetov is a billionaire whose empire include the telephone provider Ukrtelecom.

Akhmetov's holding company SCM said on Wednesday that Ukrtelecom's office in the industrial eastern regions controlled by the militias had been seized.

"As of Wednesday, Ukrtelecom announces the forced interruption of services in the part of the Donetsk region not under Kiev's control," it said in a statement.

"This is due to the interference by unidentified people of the network's operations and the takeover of our office by armed people."

Insurgent leader Alexander Zakharchenko said that the plan to take over enterprises was "going according to plan".

"Since midnight we are introducing (our own) control," he was quoted as saying by the rebels' news agency.

"Everything will be finished by the evening."

Neighbouring rebels in the self-proclaimed Lugansk People's Republic said they had seized three Akhmetov-owned coal mines this week.

Their operations continued but the mines' takeover may create serious problems for the tycoon and coal-dependent Ukraine.

The dispute has only added to Kiev's numerous headaches.

Prime Minister Volodymyr Groysman told a cabinet meeting on Wednesday that "the consequences of the blockage are ruinous to the government of our state".

Groysman said the government had devised a plan of how trade with the east could be put back on track.

But he provided no specifics about how he intended to end the blockade.

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