By Olena Harmash and Ivan Lyubysh-Kirdey
KYIV/KOSTIANTYNIVKA, Ukraine (Reuters) -Moscow acknowledged on Friday that its forces had fallen back north of Ukraine's battlefield city of Bakhmut after a new Ukrainian offensive, in a retreat that the head of Russia's Wagner private army called a rout.
The setback for Russia, which follows similar reports of Ukrainian advances south of the city, suggests a coordinated push by Kyiv to encircle Russian forces in Bakhmut, Moscow's main objective for months during the war's bloodiest fighting.
"In three days of counter-offensive activity, the Ukrainian Armed Forces in the Bakhmut sector have liberated 17.3 sq. km (6.6 sq. miles) of territory," Serhiy Cherevatyi, spokesman for the "east" group of Ukrainian forces, said on the Telegram messaging app.
Both sides are now reporting the biggest Ukrainian gains in six months, although Ukraine has given few details and played down suggestions a huge, long-planned counteroffensive has officially begun.
Russian Defence Ministry spokesman Igor Konashenkov said Ukraine had launched an assault north of Bakhmut with more than 1,000 troops and up to 40 tanks, a scale that if confirmed would amount to the biggest Ukrainian offensive since November.
The Russians had repelled 26 attacks but troops in one area had fallen back to regroup in more favourable positions near the Berkhivka reservoir northwest of Bakhmut, Konashenkov said.
Yevgeny Prigozhin, head of the Wagner forces that have led the campaign in the city, said in an audio message: "What Konashenkov described, unfortunately, is called 'a rout' and not a regrouping".
In a separate video message, Prigozhin said the Ukrainians had seized high ground overlooking Bakhmut and opened the main highway leading into the city from the West.
"The loss of the Berkhivka reservoir - the loss of this territory they gave up - that's 5 sq km, just today," Prigozhin said.
"The enemy has completely freed up the Chasiv Yar-Bakhmut road which we had blocked. The enemy is now able to use this road, and secondly they have taken tactical high ground under which Bakhmut is located," said Prigozhin, who has repeatedly denounced Russia's regular military over the past week for failing to supply his men in Bakhmut.
Russian-installed officials said two missiles hit an industrial complex in Luhansk, in Russian-occupied territory around 100 km (60 miles) behind the front. Video posted on the internet showed huge columns of smoke above the city. The strike, just beyond the range of the main battlefield rockets Ukraine has previously deployed, came a day after Britain announced it was sending longer-range cruise missiles.
The Ukrainian advance near Bakhmut appears to have begun on Tuesday when a Ukrainian unit southwest of the city said it defeated a Russian brigade, recapturing a swathe of land. Prigozhin also said the Russian brigade there fled.
Reuters has not been able to independently verify the situation in the area.
In its evening report on Friday, the Ukrainian military command described fighting in Bakhmut and Russian shelling of nearby towns, but made no mention of any advance or Russian withdrawal.
Prigozhin, whose fighters have been battling to push Ukrainian forces out of Bakhmut's Western outskirts, has said the north and south flanks, guarded by regular Russian troops, were crumbling. Russia's defence ministry denies this.
In his nightly address, President Volodymyr Zelenskiy said the Russians were "already internally ready for defeat".
"They have already lost this war in their minds. We must put pressure on them every day so that their sense of defeat turns into their flight, their mistakes, their losses."
In Kostiantynivka, about 20 km (12 miles) southwest of Bakhmut, firefighters were battling a blaze at a house that went up in flames after it was struck by Russian shells.
"It hit the roof and the roof collapsed. My neighbour rushed outside and started shouting, asking for help," said Oleksandr Lazorka, who lives next door. "We pulled out a blind woman - an elderly, blind woman - from under the rubble and then the fire erupted."
The 15-month-old war in Ukraine is at a turning point, after six months during which Kyiv kept its troops on the defensive while Russia mounted a winter campaign that brought the bloodiest ground combat in Europe since World War Two but yielded scant gains.
Since the start of this year, Kyiv has received hundreds of new Western tanks and armoured vehicles, holding them back in preparation for a counteroffensive to recapture occupied territory.
Ukrainian officials have played down the suggestion that their offensive is already under way: Zelenskiy said in an interview this week Kyiv needed more time for equipment to arrive. Prigozhin called that deceptive and said the Bakhmut advances amounted to the start of Kyiv's campaign.
(Reporting by Reuters bureaux; Writing by Peter Graff, Kevin Liffey and Grant McCool; Editing by Frank Jack Daniel, Rosalba O'Brien and Diane Craft)