KIEV (Reuters) - Ukrainian Prime Minister Arseny Yatseniuk said on Wednesday Kiev would never provide any funding to rebel-controlled areas in the east because the government refused "to finance terrorists."
He spoke as the peace deal between the two sides appeared to fray further.
Both Ukraine and separatist leaders accuse the other side of violating the Sept. 5 agreements, signed in the Belarusian capital, Minsk, that called a ceasefire and provided for Kiev to grant "special status" to the conflict-hit eastern regions.
While rebel authorities desire total autonomy, the regions have yet to sort out their finances, leaving pensioners without funds and social benefits unpaid.
Kiev will continue to supply gas and electricity to separatist regions, but "so long as the territories of Donetsk and Luhansk regions are controlled by imposters, the central budget will not send funding there," Yatseniuk said in a government meeting.
Ukraine refers to the rebels as terrorists.
Yatseniuk said the government would ordinarily have paid around 34 billion hryvnia ($2.5 billion) into the local budgets of Donetsk and Luhansk regions in 2014, but these funds would be disbursed only once Ukraine regained control of the territories.
"Today, paying out funds on these territories means the money does not reach the people, (but) is stolen by Russian gangsters and essentially supports Russian terrorism," Yatseniuk said.
Earlier on Wednesday separatist leaders signaled they would no longer abide by the September peace agreements, after President Petro Poroshenko said he wanted parliament to scrap the law offering "special status" to the eastern regions.
(1 US dollar = 13.5200 Ukraine hryvnia)
(Reporting by Natalia Zinets; Writing by Alessandra Prentice; Editing by Richard Balmforth/Jeremy Gaunt)