Pro-Russian separatists claimed that at least five people were killed and eight were wounded when Ukrainian jets dropped bombs on a government administration building they occupied in the city.
The explosion came after 500 separatists attacked and lay siege to a border guard base near Luhansk manned by 70 Ukrainian soldiers.
At least five of the attackers were killed in fighting around the base, a spokesman for the guards told the AP.
Rebels massed near the base had earlier promised border officers that they would be unharmed if they surrendered and laid down their arms.
The initial attack was launched by about 100 rebels but the number of attackers swelled a few hours later.
Rebel forces from the self-proclaimed Luhansk People's Republic claimed that Ukrainian jets had responded by dropping cluster bombs on the administrative buildings they occupied in the city.
A video showed an explosion, debris scattered around the building and men trying to move a body.