Oleg Boldyrev reports from the scene of the operation near Sloviansk
Russian Defence Minister Sergei Shoigu said Moscow had been "forced to react" after Ukrainian commandos moved on the separatist stronghold of Sloviansk.
President Vladimir Putin had earlier warned Ukraine of "consequences".
Pro-Russian separatists are occupying key buildings in a dozen eastern towns, defying the central government.
Mr Shoigu was quoted by the Interfax news agency as saying: "If this military machine is not stopped, it will lead to greater numbers of dead and wounded.
"We are forced to react to such a development of the situation."
The exercises will be in Russia's southern and western military districts, with Mr Shoigu adding that "the air force will conduct flights to train for manoeuvres along the state borders".
Sanctions 'teed up'
At least two pro-Russian separatists were earlier reported killed as Ukrainian commandos, backed by armoured vehicles, cleared checkpoints on the outskirts of Sloviansk.
There was also unrest in the south-eastern city of Mariupol.
Interior Minister Arsen Avakov said government forces had ousted pro-Russian militants from the city hall building there.
However, the BBC's Natalia Antelava in Mariupol says that although it appears the mayor and an armed contingent did enter early in the morning there is no sign of Ukrainian troops now.
She says pro-Russian activists plan to re-enter once the building has been checked for mines.
The Ukrainian armoured vehicles and troops in the Sloviansk operation now appear to have pulled back.
BBC correspondents visited one checkpoint, south of a village called Makatikha, and reported seeing smoking tyres and broken sandbags. But they say there was no live fire and no sign of bodies.
The BBC's Steve Rosenberg, in Sloviansk, says the centre of the town appears calm, with people in the streets and the makeshift checkpoints set up by pro-Russian activists still in place.
Speaking on Russian TV as news of the Sloviansk operation was coming in, Mr Putin said: "If the regime in Kiev has begun using the army against the population inside the country, then this is undoubtedly a very serious crime.
"Of course, this will have consequences for the people who take such decisions, and this also affects our inter-state relations."
Meanwhile, US President Barack Obama has accused Russia of flouting a deal on Ukraine reached in Geneva last week, under which illegal armed groups, including those who have seized public buildings, would return home.
Mr Obama told a news conference in Japan that Moscow had failed to halt actions by militants in the region and warned that the US had further sanctions against Russia "teed up".
A contingent of US troops has begun landing in Poland for military exercises amid concerns among Nato's eastern member states about Russia's intentions.
Mr Shoigu said on Thursday: "Planned exercises by Nato forces in Poland and the Baltic countries do not foster normalisation of the situation surrounding Ukraine."
Moscow has said it will respond to any attack on its interests in Ukraine, and has tens of thousands of troops along its side of the border.
Unrest began in Ukraine last November over whether the country should look towards Moscow or the West.
In other developments on Thursday:
- The funeral takes place in Horlivka of pro-Ukrainian politician Volodymyr Rybak, who was abducted and killed in Donetsk region
- The IMF says it will meet on 30 April to discuss aid to Ukraine
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At the scene
We drove into Sloviansk expecting to see signs of a major confrontation between Ukrainian security forces and heavily armed pro-Russian militiamen. Earlier, Ukraine's interior ministry reported that a number of "terrorists" had been killed in a gun battle and three roadblocks cleared.
We saw people strolling through the town centre, children walking down the street, and traffic on the roads. The makeshift checkpoints, set up by the militiamen remained.
We've also been to Artemivsk. The interior ministry said a military base there had been attacked by up to 70 armed separatists and that they had been repelled. Apart from a broken window and a damaged door, there was little sign of a battle. Kiev says its military operations against pro-Russia militants continue. But what we saw suggests the need for caution about claims and counterclaims in this conflict.
At the scene
On Thursday morning, Ukraine's Interior Minister Arsen Avakov updated his Facebook status with news that government troops had freed the administrative building in Mariupol. But when we got there the picture was very different.
The building is still surrounded by barricades made of barbed wire and tyres, and dozens of angry protesters are still in control of the entrance. Protesters said that soldiers and civilians stormed the building overnight. A fight broke out and police said five people were hurt.
Among the civilians, they said, was the mayor. His office confirmed he went into the building to "assess the situation", but would not give further details. Police here do not seem to know, or are not willing to disclose, much either. They told me they were treating what happened overnight as a "criminal incident" rather than an anti-terrorist operation - another sign that Kiev is struggling to control local law-enforcement.
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