Chechen rebels have stormed out of the mountains to the plains in the south of the region, having broken through Russian army units which had been blockading them for weeks.
Both sides were reported to have taken heavy casualties in what has become the bloodiest phase of the recent conflict.
The turn for the worse in Russia's fortunes occurred as the British Prime Minister, Mr Blair, visited St Petersburg in what has been portrayed in Russia as support for acting President Vladimir Putin's election campaign.
In a separate development, a book to be published in Moscow today gives several disturbing insights into Mr Putin's character. The first instalment of Conversations with Vladimir Putin, based on interviews with the acting President, was published at the weekend by the daily Kommersant.
In the course of the interviews, Mr Putin subjected the Radio Liberty journalist, Mr Andrei Babitsky, to a barrage of vicious criticism.
Mr Babitsky was arrested by Russian troops in Chechnya, held for three weeks before being handed over to a Chechen warlord and was later arrested in Dagestan. He is now in Moscow and has been charged with possession of a false passport.
Mr Putin described Mr Oleg Kalugin, the KGB general who joined the Russian democratic movement, as "a traitor and a complete idler", and praised Russians who informed on their neighbours, acquaintances and fellow workers to the KGB in the Soviet era.
Clearing up some details of his career, Mr Putin contradicted reports that he was brought from relative obscurity to the Kremlin by the former privatisation minister, Mr Anatoly Chubais, one of Russia's most unpopular politicians.
"From the very beginning, strange though this may be, Pavel Borodin was the initiator of my transfer," Mr Putin said. Mr Borodin is currently the subject of an international arrest warrant issued by the Swiss authorities in connection with corruption.
Asked if this was why he appointed Mr Borodin to the post of secretary for the proposed union of Russia and Belarus, Mr Putin replied: "It is not I who appointed him. I suggested him and he was elected." He was appointed to this post despite the accusations against him of serious corruption because, Mr Putin said, "there is a golden rule, a fundamental principle of any democratic system and it is called the presumption of innocence".
It has been frequently suggested in political circles in Moscow that, despite his verbal support for democratic principles, Mr Putin is prepared to move to strong authoritarian rule if and when he is elected on March 26th. Asked about this by Kommersant, he replied simply: "I won't tell you."
