The group of four people who have been missing since Monday "are all fine," said Vyacheslav Ponomaryov, the self-proclaimed "people's mayor" of Slavyanksk, in comments to the Interfax news agency.
"We had told them not to travel anywhere for a time but these four turned out to be very keen. Of course they were detained."
"No one arrested them. We detained them. Now we will work out who they are, where they were going and why, and we will let them go," Ponomaryov said.
He suggested that the team could have been involved in espionage.
The observers from the Vienna-based Organisation for Security and Co-operation in Europe - a Dane, an Estonian, a Turk and a Swiss national - went missing at a rebel roadblock outside Donetsk on Monday.
The Ukrainian authorities had already said Wednesday that the four observers had been seized by pro-Russian rebels.
A second group of 11 observers was detained in the same region of Donetsk on Wednesday but the OSCE later said it had managed to re-establish contact with them.
Swiss President and OSCE chief Didier Burkhalter on Wednesday slammed the detention of observers as "acts of sabotage".
In a statement, Burkhalter called for their "immediate and unconditional release."
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