Separatists abandoned the cities of Sloviansk and Kramatorsk, as well as some smaller towns, in the north of Donetsk region.
However, they have vowed to continue the fight from Donetsk city, describing the withdrawal as a tactical retreat.
Ukrainian forces launched an offensive this week after a truce broke down.
The government said in a statement that the rebels had fled after mortar shelling from government forces.
Ukraine’s newly-elected President Petro Poroshenko said the breakthrough was “the beginning of the turning point in the fight against militants”.
“This is not complete victory. But the cleansing of Sloviansk from gangs who are armed to the teeth is of huge symbolic importance,” he said in a statement.
Some rebels were initially quoted as saying they were heading to the nearby city of Kramatorsk.
It later emerged that the pro-Russian fighters had also abandoned their posts there, and were apparently heading south to the regional capital.
Alexander Borodai, prime minister of the self-proclaimed Donetsk People’s Republic (DPR), said the rebels had abandoned the entire “northern sector”.
The pro-Russian authorities in Donetsk city said rebel fighters had begun to arrive from the north, and urged residents to stay in their homes.
Rebel leaders were quoted as saying the decision to abandon Sloviansk was taken by Igor Strelkov, the military commander of the DPR.
Igor Strelkov, whose real name is Igor Girkin, had pleaded for Russian intervention on Friday saying his men had lost the will to fight.
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