Russian-backed rebels in east Ukraine have proclaimed the creation of a new state known as Malorossiya, which translates as "Little Russia." Germany has condemned the proposal as "completely unacceptable", Deutsche Welle reported.

Rebel forces in eastern Ukraine on Tuesday announced that they plan to hold a referendum calling for the creation of a new state known as Malorossiya, which translates as "Little Russia."

In a statement published on the rebel-aligned Donetsk News Agency, rebel leader Alexander Zakharchenko said that representatives from the self-declared "People's Republics" of Donetsk and Luhansk in east Ukraine had agreed to "declare the establishment of a new state, which is the successor of Ukraine."

Every evening, the shelling begins around sunset. The front lines near Donetsk see nightly mortar and machine gun fire as the conflict between the Ukrainian military and pro-Russian separatists’ rages on. Caught in the crossfire are many elderly civilians who are too impoverished to go elsewhere. Ivan Polansky, above, surveys the damage on his home in Zhovanka.

The declaration went on to say that they "the government of Ukraine has proven itself to be a failed state" and that Ukraine has "demonstrated its current and future incapability of providing peace and prosperity to its residents."

Under the proposal, Malorossiya would cover the entire area of Ukraine, while the capital would be moved from Kiev to the insurgent bastion of Donetsk. Kiev would be reduced to a "historical and cultural center."

The self-proclaimed authorities in Donetsk have repeatedly expressed their intentions to join Russia. The Kremlin, however, has stopped short of annexing the area and denies to have propped up rebel groups with military support, despite overwhelming evidence suggesting otherwise.

The German government decried the proposal for a new state as "completely unacceptable."

Responding to an email inquiry, a spokesperson for the federal government told DW: "Mr Zakharchenko has no legitimacy to speak on behalf of Ukraine. We expect Russia to also immediately condemn this step, and that it neither respects nor even acknowledges it.