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The boss of Russia's Wagner mercenary group, Yevgeny Prigozhin, says he has seized "all military facilities" in the southern city of Rostov-on-Don.
The announcement comes hours after he threatened to topple Defence Minister Sergei Shoigu.
President Vladimir Putin said this was "a stab in the back" and pledged to punish those who had "betrayed" Russia.
He acknowledged the situation in Rostov remained difficult. Tightened security has been introduced in Moscow.
The Wagner Group is a private army of mercenaries that has been fighting alongside the regular Russian army in Ukraine.
Tension has been growing between them over how the war has been fought, with Mr Prigozhin launching vocal criticisms of Russia's military leadership in recent months.
The dramatic escalation came after Mr Prigozhin accused Russia's military of hitting his group's base in Ukraine - a claim denied by Moscow.
Mr Prigozhin claims this is not a military coup - but his aim seems to be to topple Russia's military leadership, reports the BBC's Russia editor Steve Rosenberg in Moscow.
In a video posted on his Telegram channel on Saturday, Mr Prigozhin said his fighters had entered Rostov-on-Don after crossing the border from Ukraine - and said his men would destroy anyone who stood in their way.
He said his forces had shot down a Russian military helicopter that "opened fire on a civilian convoy" - no location was given and that assertion could not be immediately verified.
The local governor in Rostov urged citizens there to keep calm and stay indoors.
Wagner forces are also said to be in control of military facilities in the city of Voronezh, north of Rostov and on route to Moscow.
In his TV address on Saturday, Mr Putin described the action as a "betrayal" by people putting personal ambitions above the interests of Russia.
Looking stern, the Russian president said those responsible - without mentioning Mr Prigozhin by name - would be held responsible. Praising Wagner mercenaries for their involvement in the war in Ukraine, he urged them not to follow their bosses.
Mr Prigozhin and President Putin used to have a close relationship.
But the latest challenge is a headache for the Russian leader - on top of the fact that the Russian invasion of Ukraine has not been going to plan - our Moscow correspondent says, and Mr Putin has decided to now say "enough is enough".