* Pro-Russian separatists seized OSCE military observers
* EU, US have imposed sanctions on officials and companies (Adds deputy foreign minister comments, Boiko)
KIEV, April 29 (Reuters) - The self-declared mayor of a separatist-held town in eastern Ukraine said on Tuesday he would discuss the release of detained military observers with the West only if the European Union dropped sanctions against rebel leaders.
The Ukrainian government said it had a plan to secure the release of the six observers, seized last week by separatists who said they had found a spy with them, and that it hoped they would soon be free but gave no details.
Two rebel leaders in Ukraine were included in a new list of officials hit by EU sanctions. Vyacheslav Ponomaryov, the de facto mayor of Slaviansk, told Interfax news agency the measures against Denis Pushilin, leader of the self-styled People's Republic of Donetsk, and Andrei Purgin, another leader in the eastern region, were "not conducive to dialogue".
"We will resume dialogue on the status of the prisoners of war only when the European Union rejects these sanctions," he said of the observers, who were in Ukraine under the auspices of the Organization for Security and Cooperation in Europe (OSCE), a democracy watchdog.
"If they fail to remove the sanctions, then we will block access for EU representatives, and they won't be able to get to us. I will remind my guests from the OSCE about this."
In Kiev, Ukraine's deputy foreign minister, Danylo Lubkivsky, told a news conference that Ukraine had "developed a clear plan to secure the release of hostages. We look forward to their speedy release".
He gave no details of the plan.
Lubkivsky said he would wait to see the results of the new round of sanctions, which some Ukrainian politicians who want closer economic ties to Russia said would do little to ease tensions in Ukraine.
"I believe that in order for the world not to return to the past - to the Iron Curtain, the Cold War - it is necessary to negotiate," said Yuri Boiko, a presidential candidate and former deputy prime minister under ousted President Viktor Yanukovich.
The EU has imposed asset freezes and travel bans on 15 Russians and Ukrainians over Moscow's annexation of the Crimea region and what Brussels says is its support of the separatist campaign.
Moscow says it has played no role in the uprising in Ukraine's east and that Russian-speaking citizens have occupied administrative buildings to demonstrate their concern that their rights would be violated by the pro-Western government in Kiev. (Reporting by Pavel Polityuk, Writing by Elizabeth Piper, Editing by Timothy Heritage)
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