More than 5,000 Russian soldiers have fled following a massive Ukrainian offensive.
Kyiv’s troops have been pushing further into Donetsk in recent days and weeks as it attempts to force the invading army back.
Efforts have focussed on retaking Lyman, a city held by Russia which serves as the main military bastion in the north of the semi-occupied region.
Ukrainian troops had the area surrounded and had all but trapped fighters stationed there when they were given permission to retreat.
The Russian defence ministry has confirmed its troops have left Lyman ‘in connection with the creation of a threat of encirclement’, state media said.
The breakthrough is a tactical and symbolic victory for Ukraine just 24 hours after Vladimir Putin tried to claim Donetsk has been absorbed into Russia.
It served as the main logistics and transport hub for operation in the region, providing a crucial tactical role for the Kremlin.
Video shared on social media showed Ukrainian soldiers waving a flag near the entrants to the city.
Serhii Cherevatyi, spokesperson for Ukraine’s eastern forces, earlier said: ‘The Russian grouping in the area of Lyman is surrounded.
‘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.’
Before the retreat was confirmed, he claimed Russian troops had asked their commanders to retreat but had been told they must hold their position.
A major counteroffensive has sent panic through the Kremlin and triggered Mr Putin to call hundreds of thousands of reservists in a bid to shore up his faltering army.
Mr Putin attempted to claim he had successful annexed Donetsk along with Luhansk, Kherson and Zaporizhzhia this week.
Sham referendums were held ahead of a huge celebration in Moscow’s Red Square yesterday.
A massive crowd was bussed in to hear music and Mr Putin give a speech claiming a ‘victory’ after seven months of war.
But discontent with the war is growing at home because of the growing death toll and botched mobilisation.
In a rare admission of weakness, Mr Putin accepted people not fit to serve in the armed forces had been forcibly drafted up in recent weeks.
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