The group from the Organization for Security and Co-operation in Europe were detained Friday as it entered the town of Slavyansk, alongside five Ukrainian military representatives and the driver of their bus, Ukraine's Interior Ministry said.
Ukraine's Security Service, the SBU, said the group is being kept under "inhumane conditions" in the basement of a building held by the militants.
"One of the detainees is in need of urgent medical care which the Ukrainian anti-terror unit is ready to provide," the service said in a statement. "Terrorists are not allowing any assistance to the hostages."
The self-declared mayor of Slavyansk, Vyacheslav Ponomarev, told reporters that one of the "prisoners" has diabetes, but he has the medicine he needs and will be given his own quarters overnight.
Ponomarev earlier told CNN that the observers were safe and well, but that there were no negotiations going on. Their captors will exchange them for activists held by Kiev, he said, adding that the men were unarmed soldiers from NATO countries who did not have permission to be there.
A spokesman for the OSCE said there is work being done to free the captives.
The organization is in talks with the Ukrainian government, and is seeking contact with the group that has detained their team, Michael Bociurkiw said.
"We have to work with the utmost speed and, of course, the Ukrainian government is a key partner in this," he said.
Separatist leader Denis Pushilin, self-declared chairman of the so-called "Donetsk People's Republic," told CNN he doesn't believe they are from the OSCE, but that some are NATO spies.
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