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President Vladimir Putin on Thursday ordered the Russian military to cancel plans to storm the Azovstal steel plant inside the port city of Mariupol, where thousands of Ukrainian defenders and civilians are holed up.

Effectively declaring victory in the city after nearly two months of siege, Putin said there was no point in trying to root out the defenders barricaded inside the sprawling factory.

"I consider the proposed storming of the industrial zone unnecessary," he told his Defence Minister Sergei Shoigu in a televised meeting at the Kremlin. "I order you to cancel it."

"There's no need to climb into these catacombs and crawl underground through these industrial facilities," he said. "Block off this industrial area so that not even a fly can get through."

Shoigu estimated 2,000 Ukrainian fighters remained inside the plant. Putin called on them to surrender, saying Russia would treat them with respect.

Overnight, Mikhailo Podolyak, Ukraine's chief negotiator, proposed that talks be held inside Mariupol itself on the fate of its last defenders.

"Without any conditions. We’re ready to hold a 'special round of negotiations' right in Mariupol," he tweeted late on Wednesday.

"One on one. Two on two. To save our guys, Azov (battalion), military, civilians, children, the living & the wounded. Everyone. Because they are ours. Because they are in my heart. Forever."

NO SURRENDER

The city of formerly 400,000 people on the Sea of Azov, under bombardment and siege since the war's earliest days, has been the scene of the heaviest fighting and worst humanitarian catastrophe of the conflict.

Ukraine says tens of thousands of civilians have died there. But Russia now says that, apart from the huge steel plant, the city is effectively under its control.

A commander of the Azov regiment rejected Russia's demands that defenders surrender. In a video appeal, Svyatoslav Palamar called for "third parties" to guarantee the safety of hundreds of civilians sheltering in the factory's bunkers.

"Let me say that we do not accept the conditions set down by the Russian Federation on giving up our weapons and our defenders giving themselves up as prisoners," Palamar said.

Russia has blocked all efforts by Ukraine to send aid to Mariupol or buses to evacuate civilians to Ukrainian-controlled territory, and Kyiv accuses it of forcibly deporting tens of thousands of residents to Russia. Moscow says Russia has taken in 140,000 civilians in humanitarian evacuations.

On Wednesday, Russian-backed forces organised a small convoy of buses to let some residents leave an area they control for Zaporizhzhia, in Ukrainian government-controlled territory.

Tamara, 64, was leaving with her husband, daughter, son-in-law and grandson to escape "this nightmare". "We lived in basements for 30 days," she said tearfully as she boarded a bus.

The number of Ukrainian refugees who have fled to neighbouring countries surged past five million on Wednesday, and many millions more are displaced inside the country.

DONBAS PUSH

Mariupol is the link that Moscow needs to provide a secure connection between territory held by the separatists it backs in eastern Ukraine's Donbas region and Crimea, the peninsula it seized in 2014.

It is also the main port of the Donbas, two provinces that Moscow demands Ukraine fully cede to the separatists in what the Kremlin now describes as the war's main objective.

After failing to capture Kyiv last month and being forced to withdraw from northern Ukraine, Russia regrouped to launched a major new offensive this week in the Donbas, pushing from several directions to encircle Ukrainian troops.

Ukraine said Russian forces had failed so far to completely capture Rubizhne, a Donbas town that has been a focus of their advance. On Tuesday, Ukraine said the Russians had captured neighbouring Kreminna.

British military intelligence said Russian forces were keen to demonstrate significant success by May 9, the anniversary of the allied victory in Europe in World War Two.

Putin said the first test launch on Wednesday of Russia's Sarmat intercontinental ballistic missile, a new and long-awaited addition to its nuclear arsenal, would "provide food for thought for those who, in the heat of frenzied aggressive rhetoric, try to threaten our country". 

Russia calls its incursion a "special military operation" to demilitarise and "denazify" Ukraine. Kyiv and its Western allies reject that as a false pretext for a war of choice.

U.S. President Joe Biden will deliver an update on Ukraine at 9:45 a.m. (1345 GMT) on Thursday as he works to complete a new arms package, which is likely to be a similar size to an $800 million one announced last week, a U.S. official said.