Pro-Russia separatists have seized a bus in Slaviansk carrying seven members of the Organisation for Security and Cooperation in Europe (OSCE), according to the Ukrainian interior ministry.
"Near the entrance to Slaviansk, unknown persons stopped the bus with 13 passengers including seven OSCE representatives, five representatives of the armed forces of Ukraine and the driver," a ministry spokesman said.
The passengers were being held in the headquarters of the state security agency (SBU) which had been overrun by pro-Russian insurgents.
A rebel leader in the eastern Ukrainian, the self-appointed mayor of Slaviansk Vyacheslav Ponomaryov told reporters there was a "spy" on board.
"Inside there was a person who worked for the Ukrainian army chief of staff. He's a spy," Ponomaryov said.
The Vienna headquarters of the OSCE did not confirm the seizure but said that all the observers in Ukraine were unaccounted for.
Swedish foreign minister Carl Bildt tweeted:
The hostage-taking occurred as Western leaders moved on Barack Obama's demands for much tighter sanctions against Russia over the Ukraine crisis.
Germany, France, the US, Britain and Italy allied to accuse Russia of failing to de-escalate the crisis and disarm pro-Russia militias who have occupied government buildings in towns and cities in eastern Ukraine, as agreed at the Geneva security summit a week ago.
The West gave no indication of what the sanctions would entail or when they would be implemented.
"The leaders agreed to work closely together, and through the G7 and European Union to coordinate additional steps to impose costs on Russia," the White House said.
"The leaders also agreed that Russia had not reciprocated - including by not publicly supporting the Geneva accord, nor calling on armed militant groups to lay down their arms and leave the government buildings they've occupied - and had continued to escalate the situation through its increasingly concerning rhetoric and threatening military exercises on Ukraine's border."