Ukraine’s government has begun cutting off payments and banking services to areas of the country under the control of pro-Russian rebels, in a further sign that Kiev has given up trying to control the territory.

There has been a problem with ready cash in the region for months, but Kiev’s decision to sever banking services to the region mean even credit cards will no longer work.

Journalists reported seeing long queues of people outside banks in Donetsk attempting to withdraw their money. The majority of businesses said their credit-card machines were no longer working, after Ukraine’s central bank ordered all banks to cease operations in the east.

Ukraine’s government has also said it will stop funding social services such as schools and hospitals in areas it does not control.

Winter in the major city of Donetsk and other parts of the east under separatist control is likely to be harsh for those who have remained, as industry has ground to a halt, military confrontation continues and supplies of food and energy are unreliable.

The separatist authorities have a dilemma: they have declared independence from Ukraine, but unlike with the Crimea peninsula, Russia has shown little appetite for formally taking over the east. This leaves the rebel authorities unsure where to turn for the cash to dole out benefits, pensions and other payments.

“What this means in reality is the confiscation of the pensions and benefits of our veterans, pensioners, disabled people and mothers … It is an attempt to end civilised life in the Donbass region,” said the Donetsk People’s Republic in an official statement. “We think there are no legal reasons not to pay money from the budget to people based in the Donetsk and Luhansk people’s republics. People living on our territories have the same rights as other citizens of Ukraine.”

Previously, the Donetsk authorities have proclaimed their territory an independent state and said they no longer wanted anything to do with Kiev. Ukraine has been setting up makeshift border posts along the line of control, a further sign that Kiev has realised it cannot win back the territory militarily.

Representatives of Russia, Ukraine and the separatists signed a ceasefire agreement in Minsk in September, but sporadic fighting has continued and none of the sides have taken the agreements seriously.

Philip Breedlove, Nato’s top military commander, said on Wednesday that Russian forces were still operating in eastern Ukraine. Breedlove, on a visit to Kiev where he met Ukrainian president Petro Poroshenko, said the Russian army was “training, equipping, giving backbone” to separatist forces.

Russia has repeatedly denied any militarily involvement in east Ukraine, despite mounting evidence to the contrary. Moscow has claimed any Russian soldiers in the east had either got lost or were on holiday.