According to the top regional official, Ukrainian forces have been ordered to withdraw from Severodonetsk.
The eastern city has been bombarded for weeks as Russian forces attempt to take complete control of the region.
A Ukrainian retreat would be significant because it would hand over control of all of Luhansk to Russia, except the city of Lysychansk.
President Vladimir Putin has made Luhansk, a predominantly Russian-speaking region in east Ukraine, a top priority.
Together with the Donetsk region, it forms the Donbas, a large industrial area that has been the focus of a Russian-backed separatist movement since 2014.
As a key justification for his invasion of Ukraine, Vladimir Putin falsely claims that Russian speakers in the Donbas have been victims of genocide.
Ukraine, for its part, accuses Moscow of committing genocide against the Ukrainian people through indiscriminate bombing and shelling.
Most structures were severely damaged.
In recent days, Russian forces have nearly encircled Severodonetsk and are also targeting its twin city Lysychansk.
“Remaining in positions that have been relentlessly shelled for months makes no sense,” Serhiy Haidai, regional head of Luhansk, told Ukrainian television.
“They [Ukrainian forces] have received orders to withdraw to new positions… and continue their operations from there.”
Severodonetsk district head Roman Vlasenko said on Friday that Ukrainian troops were still in the city and that a withdrawal could take some time.
According to him, the city’s entire infrastructure has been destroyed, with over 90% of houses shelled and 80% critically damaged.
Hundreds of civilians are believed to be still in Severodonetsk, many of whom have sought refuge in the sprawling Azot chemical plant. It had a population of around 100,000 people before the war.
Russian forces took control of more territory south of Severodonetsk and Lysychansk on Thursday, raising fears that Ukrainian forces could soon be encircled there.
However, Mr. Haidai stated that the Russians would find it “very difficult” to seize Lysychansk right away due to the city’s “many defensive positions” on a hill.
Despite the destruction of roads and bridges leading into the city, he said civilians were still being evacuated from Lysychansk and aid was still being delivered to the city.
Separately, a Russian-appointed official in the occupied southern city of Kherson was killed in a car blast on Friday, according to Russian news agencies.
Ukraine’s forces, which have made advances in the area, have made no public comments on the matter.
Several Kremlin-installed officials have recently been targeted in the Kherson region, control of which allows Moscow to have a land corridor from Russia to Crimea – Russia’s southern peninsula in Ukraine, which it annexed in 2014.
