LUHANSK, April 29 - Hundreds of pro-Moscow separatists stormed government buildings in one of Ukraine's provincial capitals on Tuesday and fired on police holed up in a regional headquarters, a major escalation of their revolt despite new Western sanctions on Russia, Reuters reported.

New U.S. and EU sanctions packages, announced with fanfare, were seen as so mild that Russian share prices rose in relief. A small number of names were added to existing blacklists, while threats to take more serious measures were put on hold.

Nevertheless, Russian President Vladimir Putin responded by threatening to reconsider Western participation in energy deals in Russia, the world's biggest oil producer, where most major U.S. and European oil companies have extensive projects.

Demonstrators smashed their way into the provincial government headquarters in Luhansk, Ukraine's easternmost province, which abuts the Russian border, and raised separatist flags over the building, while police did nothing to interfere.

As night fell, about 20 rebel gunmen opened fire with automatic weapons and threw stun grenades at the headquarters of the region's police, trying to force those inside to surrender their weapons, a Reuters photographer at the scene said.

"The regional leadership does not control its police force," said Stanislav Rechynsky, an aide to Interior Minister Arsen Avakov, referring to events in Luhansk. "The local police did nothing."

The rebels also seized the prosecutor's office and the television centre.

The separatist operation in Luhansk appears to give the pro-Moscow rebels control of a second provincial capital. They already control much of neighbouring Donetsk province, where they have proclaimed an independent "People's Republic of Donetsk" and declared a referendum on secession for May 11.

The rebels include local youths armed with clubs and chains, as well as "green men" - heavily armed masked men in military uniforms without insignia.

Adding control of Luhansk would give them sway over the entire Donbass coalfield - an unbroken swathe of territory adjacent to Russia - where giant steel smelters and heavy plants account for around a third of Ukraine's industrial output.

It is the heart of a region that Putin described earlier this month as "New Russia", reviving a term from when the tsars conquered it in the 18th and 19th centuries. Most people who live in the area now identify themselves as Ukrainians but speak Russian as their first language.

Gennady Kernes, the mayor of eastern Ukraine's biggest city, Kharkiv, was in a stable condition on Tuesday in a hospital in Israel, where he was flown after an assassination attempt. Kernes was shot in the back on Monday. (rt/ez)