At least 60 people, including women and new-born babies, were killed when Russian rockets crashed into the heart of Grozny in an attack aimed at the Chechen President, Mr Aslan Maskhadov's palace. More than 100 were wounded.
Grozny's crowded central market came under rocket attack last night, with witnesses reporting numerous deaths and scores of injured civilians.
Only hours earlier Russian generals vowed that their approaching troops would capture Grozny "sooner or later" to re-establish Moscow's sovereignty over a republic that won de facto independence in a brutal 1994-96 war.
Mr Maskhadov escaped the attacks unharmed but a correspondent at the scene described a picture of devastation and panic after five Russian missiles rained down on the city centre.
Mr Maskhadov was not in the palace at the time of the attack.
At least 27 badly burned and mangled bodies, primarily of women and new-born babies, were pulled from a maternity ward located on the edge of central Grozny's Liberty Square.
Another 17 bodies were recovered after a rocket struck the bustling fruit and vegetables market only 40 m away from the presidential palace, which was not hit in the attack.
The city was full of ambulances on the move last night, but virtually no other traffic. Jets could be heard flying overhead.
All the city's hospitals were overcrowded, and ambulances were trying to transport the wounded to other towns.
The body of a bus driver was found after a rocket struck an unoccupied building only 10 m away from Mr Maskhadov's seat of power.
Smoke and dust caused by the barrage made the air difficult to breathe and objects further than a few metres away impossible to see at the city centre.
Federal troops have been stationed near the western and northern suburbs of Grozny for the past four days with heavy fighting reported in other regions of Chechnya. But the Russian defence ministry in Moscow flatly denied carrying out the attack.
"We made no strikes against Maskhadov's residence, the center of Grozny or its surroundings today," a defence ministry spokesman said by telephone.
The Russian Information Minister, Mr Mikhail Lessin, said: "There is no war in Chechnya, it is a struggle against groups of bandits there."
In a separate incident, Mr Maskhadov's personal Moscow representative, Mr Mayerbek Vachagayev, was taken into custody by the police, Interfax said.
The report gave no details or motives for the arrest. Russian officials say that they will not get involved in another "war" in Chechnya.