At least 18 people, including seven policemen were killed and dozens injured after riot squads moved in to clear protesters from the centre of Independence Square using water cannon.
Several thousand protesters torched vehicles and hurled stones in the worst violence to rock the capital in more than three weeks.
Many were killed by gunshot and hundreds more were injured, with dozens of them in a serious condition.
Police steadily gained ground but thousands of protesters held on to the centre. They responded with petrol bombs, fireworks and stones. TV footage showed police throwing stun grenades at the protesters separated from them by a line of burning tents, tyres and wood.
One of the opposition's leaders, Vitaly Klitschko told them: "We will not leave here. This is an island of freedom. We will defend it."
Last night a building used by anti-government protesters as its headquarters was ablaze. People were seen leaping from the nine-storey block.
Moscow's massive cash injection, a resumption of a £12bn aid package, was seen as signal Russia believed President Viktor Yanukovich had a plan to bring street demonstrations under control and had scrapped plans to bring opposition leaders into government.
However, as protesters and police battled on the streets, Moscow said the escalation was a "direct result of connivance by Western politicians and European structures that have shut their eyes to the aggressive actions of radical forces".
Russia had seemingly won a struggle for influence over Ukraine with the West with its fiscal package that helped persuade Mr Yanukovich to snub a trade deal with the European Union in November.
However, protesters who have claimed the centre of the capital as their own are not going quietly.
Mr Klitschko, a world champion boxer-turned politician later arrived at Yanukovich's office for late night talks but he and another opposition leader, former economy minister Arseny Yatsenyuk, were still waiting to see the president an hour later.
Earlier the State Security Service (SBU), in a joint statement with the interior ministry, signalled the government's intentions. "If by 6 p.m. the disturbances have not ended, we will be obliged to restore order by all means envisaged by law," they said.
Gleb Pavlovsky, a former Kremlin adviser and political analyst in Moscow, said: "I think Russia received some kind of assurances from the Kiev leadership and Mr Yanukovich showed he would stick firmly by his position in talks, he would not make excessive concessions, he would fight the radicals who are getting stronger in the opposition and that the (new) prime minister would not be a member of the opposition."
But rather than boosting Mr Yanukovich, Moscow's move may have helped trigger a more violent turn in the protests, especially from those demonstrators who have a strong anti-Kremlin agenda.
Police fired rubber bullets and stun and smoke grenades from trucks and from the tops of buildings, forcing the protesters back by about 100 metres.
Right Sector, a militant far-right group, added to tension by calling on people holding weapons to go to Independence Square, centre of the revolt, to protect it from a possible move by security forces to break it up.
The protesters had marched to the parliament building to press the opposition leaders' calls for Mr Yanukovich to relinquish power.
US Vice President Joe Biden last night called Mr Yanukovich to express grave concern at the rising violence and to urge him to pull back government forces and exercise maximum restraint.