Russian President Vladimir Putin and his Ukraine counterpart Petro Poroshenko have agreed a ceasefire to end the conflict in Ukraine, Kiev says.
"Mutual understanding was achieved concerning the steps which will enable the establishment of peace," a statement from Mr Poroshenko's press office said, after he and President Putin spoke by telephone.
Despite the announcement a deal had been reached, a spokesman for Mr Putin declared the deal was not technically a ceasefire as Russia was not party to the Ukraine conflict.
But Mr Putin's spokesman Dmitry Peskov was quoted as saying the leaders' views "overlap to a considerable degree".
"The heads of state exchanged opinions about what needs to be done first in order to bring an end to the bloodletting in the southeast of the country as soon as possible," said Mr Peskov.
News of the developments was greeted with an immediate rally on the markets - the main Russian stock exchange, the Micex, rising 4%.
The rouble also clawed back 1.3% against the US dollar, having fallen to record lows at the height of the crisis. Airline and banking stocks also rose in London.
The news came as Russia announced it was to hold major military exercises in September of the forces responsible for its long-range nuclear capability. The drills will involve more than 4,000 servicemen and 400 technical units.
Meanwhile, world leaders have begun arriving in the UK ahead of a two-day NATO summit in Wales where the Ukraine crisis will be at the top of the agenda.
At an address in Estonia today ahead of the summit, US President Barack Obama reminded journalists of America’s military commitment to the region.
"In Ukraine earlier this year the United States increased our presence further," he said.
"We have contributed additional aircraft to the Baltic policing mission and we are continuously rotating personnel and aircraft through the Baltics."
Mr Putin and Mr Poroshenko met last week in Minsk but made no progress towards resolving the conflict, which has intensified in recent weeks as the West and Kiev accused Russia of deploying troops in Ukraine.
Earlier this week, NATO said it was set to create a "high-readiness" force and stockpile military equipment in Eastern Europe as a bulwark against potential Russian aggression.
Anders Fogh Rasmussen said the proposed new force could be comprised of several thousand troops contributed to on a rotating basis by the 28 NATO countries.
Backed by air and naval assets, he said the unit would be a "spearhead" that could be deployed at very short notice to help NATO members defend themselves against any threat, including from Russia.
