* Says rebels must put down their guns or face death
* Kremlin denounces ceasefire as ultimatum
* Peace plan will offer corridor for fighters to return to Russia
* Sees creation of "buffer zone" on border (Writes through with ceasefire, Kremlin reaction, peace plan)
By Richard Balmforth
KIEV, June 20 (Reuters) - Ukrainian President Petro Poroshenko on Friday ordered a seven-day ceasefire in the fight against pro-Russian separatists, but also warned them they could face death if they did not use the time to put down their guns.
In Moscow, the Kremlin, whose support Poroshenko needs for his plan to end the insurgency in the rebellious east, denounced the ceasefire as an ultimatum to separatists rather than a peace offering.
Poroshenko, installed only three weeks ago as president after seven months of turmoil in the ex-Soviet republic, ordered government forces to cease firing to allow his peace plan for the region to take root.
But after fierce fighting on Thursday about 100 km (60 miles) from the Russian border that apparently caused heavy losses for separatists and some deaths on the Ukrainian side, Poroshenko backed his declaration with a warning to the rebels.
Interfax news agency quoted him as telling military officers in the east that the temporary ceasefire would give the rebels just one week to lay down their arms, after which "they will have to be eliminated."
The ceasefire "does not mean that we will not fight back in the event of aggression towards our military. We will do everything we can to defend the territory of our state," his website quoted him separately as saying.
The ceasefire will run from 10 p.m. on Friday until 10 a.m. on June 27, it said.
After announcement of the ceasefire, Poroshenko launched a 15-point peace plan to end the insurgency in the Russian-speaking east which erupted in April after street protests in the capital Kiev toppled the Moscow-backed Viktor Yanukovich.
Russia subsequently annexed Ukraine's Crimean peninsula. Kiev's new authorities quickly saw the hand of Moscow when separatist groups took control of strategic buildings and towns in the east, declaring "people's republics" and declaring they wanted to join Russia.
SEPARATISTS UNIMPRESSED
In Donetsk, the main industrial hub in the region, the rebels remained unmoved by Poroshenko's ceasefire gesture or the unveiling of a peace plan on Friday.
"What kind of reaction do you expect? When they (the Kiev side) pull out their army, then you will have our reaction," a spokeswoman for the self-styled Donetsk People's Republic said.
The first soldiers for a people's republic army would take oaths of allegiance on Donetsk's Lenin Square on Saturday, she announced defiantly.
A spokesman for government forces said about 300 separatists were killed in fighting on Thursday in an eastern area about 100 km from the border and fighting continued there on Friday.
Ukrainian forces lost seven servicemen, he said. The rebel casualties could not be verified independently.
Earlier on Friday, Kiev said government forces had regained control of the border with Russia and could now stop supplies being sent to arm pro-Russian separatists - something Poroshenko needed to hear before calling a ceasefire.
Poroshenko is now gearing up for a round of high diplomacy to sell his peace plan to allies and adversaries alike in a bid to end the insurgency that threatens the unity of the country.
His biggest challenge will be to win real support from Russian President Vladimir Putin for his plan, despite relations being at rock bottom amid Ukrainian accusations that Moscow fomented the unrest.
But the Kremlin, in a quick reaction, denounced the ceasefire move. "This is not an invitation to peace and negotiations but an ultimatum to militias in the southeast of Ukraine to lay down their arms," it said in a statement.
It also said a Russian border post had come under fire and demanded "an explanation and an apology" from Kiev.
Moscow denies orchestrating the troubles and supporting the rebels. It has urged Ukraine to end "punitive" action against the separatists and engage in dialogue with them.
PEACE PLAN DETAILS
Poroshenko's peace plan would offer a safety corridor out to Russia for rebels and volunteer Russian fighters on condition they lay down their arms.
It also calls for establishment of a 10 km (6.25 mile)-wide "buffer zone" along the 1,900 km (1,180 mile)-long border.
The plan would offer freedom from prosecution for separatists who put down their arms and had not committed "serious crimes" and require all hostages to be freed.
It calls for "decentralisation" of powers and full Russian-language rights to address the grievances of people in the east.
Ukraine says fighters from Russia and supplies of guns and other military equipment have been pouring into the country to support the separatists.
But though relations with Russia have deteriorated sharply, the pro-Western Poroshenko is under pressure all the same to secure support from Moscow, as well as from his backers in the West, for his plan.
On Thursday, he openly appealed to Russian President Vladimir Putin for his support when he outlined the plan in a telephone conversation, his website said.
Poroshenko's new foreign minister will present the blueprint on Monday to his European Union counterparts in Luxembourg. Their support assumes added value after the political association agreement signed between the two sides on June 27.
There were no clear details on the flow of battle on Friday east of Krasny Liman, a town controlled by government forces about 100 km (60 miles) from the border with Russia.
"Military action is continuing," government forces spokesman Vladyslav Seleznyov said.
At the border crossing point of Izvarino on Friday, there was a two-kilometre tailback of cars, buses and minivans of people trying to cross into Russia to escape the fighting. Many vehicles were packed with bags and personal belongings, children's toys, water and food.
"We dropped everything, our house and property. Packed whatever we could carry and now we're going to Moscow and further on," said Natalya Bryalkova, 45, from a small town near Luhansk which was the scene of heavy fighting this week.
"Ukraine has gone nuts. I'm hoping to return but I don't think it will work," she said. (Additional reporting by Aleksandar Vasovic in Luhansk, Pavel Polityuk in Kiev and Alissa de Carbonnel in Moscow; Writing by Richard Balmforth; Editing by Tom Heneghan)
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