Russian President Vladimir Putin has accused the leader of the Wagner mercenary group of treason and leading an “armed mutiny”.
Ukraine war latest: Wagner boss and his troops ‘reach key Russian military city’
The city is home to the Russian military headquarters that oversees the fighting in Ukraine.
The mercenary force has also seized military facilities in the city of Voronezh, around 310 miles (500km) south of Moscow, according to the Kremlin.
Prigozhin has vowed to “destroy anyone who stands in our way”.
“This is not an armed rebellion, but a march of justice,” he said.
But responding, Putin said: “It’s the equivalent to armed mutiny.
“Russia will defend itself and repel this move.
“We are fighting the life and security of our citizens.
“It’s an attempt to subvert us from inside.
“This is a stab in the back to our troops and the people of Russia.”
Prigozhin has had a long-running feud with the defence ministry in Moscow led by Sergei Shoigu, who he claimed had targeted his troops and ordered a rocket strike on Wagner’s camps in Ukraine – killing “a huge number of our comrades”.
He said the assault happened after he branded the country’s military top brass “evil” and said the Kremlin’s rationale for invading Ukraine last February was based on lies.
This has been denied by Moscow, which has described the allegations as “untrue and an informational provocation”.
The FSB security service has urged the mercenary fighters not to carry out “criminal and traitorous orders” and to detain Prigozhin.
In a sign of how seriously the Kremlin takes the threat, security was heightened in Moscow.
While the outcome of the confrontation was still unclear, it appeared likely to further hinder Moscow’s war effort as Kyiv’s forces test Russian defences in the initial stages of a counter-offensive.
The dispute could also have repercussions for Putin and his ability to maintain a united front.
The Wagner forces have played a crucial role in Russia’s war in Ukraine, succeeding in taking the city where the bloodiest and longest battles have taken place, Bakhmut.
But Prigozhin has increasingly criticised Russia’s military leadership, accusing it of incompetence and of starving his troops of weapons and ammunition.