Footage online showed a Russian speaker telling the assembly "I proclaim the creation of the sovereign state of the People's Republic of Donetsk."
The rebels are reported to have called a referendum on forming a new republic.
Earlier on Monday, protesters seized state security buildings in both Donetsk and Luhansk.
The Luhansk security building's weapons arsenal was raided, police say.
BBC correspondents in Ukraine report that the separatists who proclaimed an independent republic were not local councillors.
The protesters want to hold a referendum by 11 May.
The Donetsk's regional government building was seized on Sunday, along with another in Kharkiv, also in Ukraine's east.
Protesters broke into Donetsk's regional government building, and another in Kharkiv, on Sunday.
Ukrainian authorities say protesters have now left the government building in Kharkiv.
Unconfirmed reports by Ukrainian news agency Unian also say gunmen tried to storm a Donetsk TV building on Monday, but were deterred by police.
At an emergency Cabinet meeting, interim Prime Minister Arseniy Yatsenyuk blamed Russia for the seizures.
"The plan is to destabilise the situation, the plan is for foreign troops to cross the border and seize the country's territory, which we will not allow,'' he said, adding that people engaged in the unrest have distinct Russian accents.
He said Russian troops remain stationed within 30 kilometres (19 miles) of the frontier.
The city of Luhansk is just 25 kilometres (15 miles) west of Russia.
Police have blocked roads into Luhansk and armed reinforcements are being sent to the restive cities.
Officials said Ukrainian National Security and Defence Council Secretary Andriy Parubiy and Security Service chief Valentyn Nalyvaychenko have been sent to the city.
Interior Minister Arsen Avakov had already arrived in Kharkiv, and First Deputy Prime Prime Minister Vitaly Yarema is on his way to Donetsk, a spokeswoman said.
She said they had "all the authority necessary to take action against separatism."
Ukraine's interim President Olexander Turchynov cancelled a visit to Lithuania to deal with the unfolding events.
The crisis has heightened nervousness in many other eastern European states, with Czech President Milos Zeman saying NATO should deploy troops in Ukraine if Russia invades.
"If Russia decides to extend its territorial expansion to eastern Ukraine, the fun is over," he told Czech public radio on Sunday.
Tensions have escalated in eastern Ukraine in recent weeks.
Russia is consolidating its grip on Crimea, annexed by Moscow last month, and thousands of Russian troops remain massed near the Ukrainian border.
The latest developments come as Ukraine's defence ministry said a Russian soldier had killed a Ukrainian military officer still loyal to Kiev in eastern Crimea late on Sunday.
Another Ukrainian officer present is reported to have been beaten and detained by Russian troops in Sunday's incident in the small town of Novofyodorovka.
The circumstances of the incident are unclear.
A Ukrainian defence ministry spokesman said the soldier had been preparing his belongings to leave Crimea in a few days, when an argument broke out with Russian servicemen.
He was then shot twice on the fifth floor of the dormitory where he lived.
But Russian media reports said a group of Ukrainian soldiers had been drinking and were on their way home when they passed Russian soldiers guarding an entry to the military base where they previously worked, prompting an argument between the two groups.
Russian news agencies reported that prosecutors have opened a criminal investigation into the death.
On Monday, President Vladimir Putin told the FSB security service to be on the alert against militant attacks and said Russia must not let non-governmental organisations be used for "destructive" purposes "as in Ukraine".
Also on Monday, Russia's consumer protection agency said it had suspended imports from six Ukrainian dairy producers, after finding their products violated regulations during laboratory tests.
Last week Ukraine temporarily suspended seven Russian food companies from selling products on Ukrainian territory.
Cheese accounts for 0.5% of Ukraine's total exports and is Ukraine's 10th largest export to Russia, according to analysts at securities firm Nomura.
Eastern Ukraine was the political heartland of Viktor Yanukovych, the pro-Russian president who fled to Russia in February after months of protests.
About half of the region's residents are ethnic Russians, many of whom believe Ukraine's acting authorities are extreme Ukrainian nationalists who will oppress Russians - a claim Kiev denies.
Russia has moved large numbers of troops to areas near the Ukrainian border, and has asserted its right to intervene in Ukraine in order to protect the rights of ethnic Russians there.
Since Crimea held a secession referendum - before being formally annexed by Russia - there have been calls for similar votes in Ukraine's east.
Russia has branded the new leadership in Kiev illegitimate.
The crisis is the biggest standoff between Moscow and the West since the end of the Cold War.
Source: BBC News Europe