Russian forces effectively seized yet another major city in Chechnya today and further squeezed the capital, Grozny, but Russian officials said Chechen fighters have stepped up their ambushes and casualties appear to be increasing on both sides.

Russian officials declared the near-capture of Argun, Chechnya's third-largest city, a major step in a "third phase" of their two-month-old ground offensive. This phase aims to drive Chechen defenders into the mountains, establish a government loyal to Moscow and begin a permanent occupation of the rebellious region. Chechnya achieved de facto independence after driving out Russian forces at the end of a bloody two-year war in 1996.

Soldiers surrounded Argun, and officers said police troops would enter the city Saturday. The forces appeared to be taking aim at Grozny, only a few miles away. "Argun is the key to Grozny," said Yuri Em, a commander of a Russian unit near Argun. Grozny has been battered by aerial bombing for more than two months. Directly storming the city, with its canyons of high-rise apartment buildings, would risk more fatalities, which the Russian military wants to avoid. The pattern of assaulting towns has been to shell them relentlessly until defenders leave.

But this pattern may be breaking down; ambushes by Chechen fighters are increasing, according to Russian officials. Unlike Russia's initial blitzkrieg on Chechnya in October and most of November, recent fighting seems to be increasing casualties on both sides.

Today, the Russians signaled their caution. Rather than enter Argun, troops stayed in the suburbs to await assurance that resistance had evaporated. Defense spokesman Valery Manilov said the Chechens booby-trapped the town with mines and said it would take a few days to clear them out. Chechen representatives in the republic of Georgia, which borders Chechnya to the south, confirmed that most defenders had abandoned the city, which lies just east of Grozny.

Oblique references to casualties were popping up in guarded Russian reports. "The federal troops also suffered casualties," a military spokesman said, in a rare official admission of problems. Saturday's edition of the newspaper Izvestia gave a downbeat assessment of recent Russian moves, saying "difficult losses" occurred and artillery and airstrikes had "not provided decisive advantage."

Heavy fighting also continued around Urus-Martan, which is southwest of the capital and the center of Islamic militancy. The Russians said the Chechens are using the cover of darkness to assault Russians from hideouts in Urus-Martan and Grozny, and the Russians are trying to retaliate by increasing airstrikes at night.

An official in the neighboring Russian region of Ingushetia said Chechen fighters attacked an armored Russian column near Urus-Martan and slaughtered more than 200 soldiers. Russian officials called the claim "lies and slander." In Tbilisi, the capital of Georgia, Chechen officials said about 40 Russian soldiers died in an attack two days ago.

The Chechens, meanwhile, also are suffering casualties. "We are dug in and are welcoming the Russians. And of course, this means blood is flowing, but much more of it will be Russian," said a Chechen representative who gave his name as Sayid.

Meanwhile, refugees from the conflict continue to live a precarious existence. Reports from Chechnya said that 40 were killed by Russians who fired at close range on a bus and cars, a report that could not be confirmed by human rights observers in Ingushetia, the main refugee destination. Russia sealed the main road from Chechnya into Ingushetia today, leaving thousands of refugees stranded under constant bombardment in towns along the way.

Refugees from Gekhi, a village near Urus-Martan, said they were being tormented by their compatriots. They complained that Chechen fighters had shot unarmed civilians in the town who tried to declare the place neutral, according to Human Rights Watch, a New York-based observer group working in Ingushetia. The guerrillas had been entering Gekhi from Urus-Martan to close in on Russian trenches. The civilians, fearing Russian artillery and airstrikes, tried to prevent the fighters from entering.

The Russians continued to bitterly resist Western urging to settle the war through negotiations. The Foreign Ministry issued a statement lashing out at a call from NATO for restraint. As they have in the past, the Russians equated their actions in Chechnya with NATO's bombing of Yugoslavia.

"It appears at the very least cynical--such a love for peace among those who recently carried out aggression," the statement said. The document went on to accuse NATO of wanting to destabilize all of the Caucasus.