On August 6, the very day of the offensive, Russian forces began a major operation in the village of Alkhan-Yurt by moving 1,500 paramilitary Internal Troops and pro-Moscow Chechen policemen of Doku Zavgayev's government out of Grozny.

Using their intimate knowledge of the city, Chechen units entered Grozny and avoided the network of Russian checkpoints and other positions in a carefully planned and highly coordinated rapid advance before attacking or blocking targets deep in Moscow-controlled territory.

Rather than trying to capture or destroy all individual fortified checkpoints (blokpost), barracks, police stations, and other Russian positions, the Chechen fighters cut off and isolated most of them, mining the approaches to prevent escape or reinforcements, and waited for the government troops to surrender.

[10] The largest pocket was located at the government offices in the center of the city, including the interior ministry building and the republican FSB headquarters.

[11] In another part of the city, several groups of Russian troops took shelter at the Municipal Hospital 9, where they held approximately 500 civilians hostage until they were allowed to evacuate.

According to the human rights organization Memorial, reliable sources stated that the execution list for one region of Grozny comprised more than 200 names.

[14] According to Gelayev, "Zavgayev had either 15 or 18 thousand 'Chechen policemen' [in all of Chechnya], but as soon as we entered Grozny in August 1996, they all scattered and went home, then they went over to the Mujahideen, except for a few dozens of those who were guilty of shedding Chechen blood.

The day before, a Chechen separatist group led by Akhmed Zakayev had captured a large supply of RPO rocket launchers by seizing Grozny's main railway station (according to the 2002 indictment by the Russian government, Zakayev's fighters killed or wounded more than 300 MVD troops at the train station[15]); as a result, Russian tanks became much easier targets for Chechen mobile units.

On August 19, Russian General Kostantin Pulikovsky surrounded the city and issued an ultimatum that the Chechen fighters should leave Grozny within 48 hours or face an all-out attack.

Many refugees were also fired on at checkpoints, and Russian state television ORT journalist Ramzan Khadzhiev was shot dead by federal soldiers while trying to flee the city.

After returning to Chechnya on August 20, Lebed ordered a new ceasefire and re-opened direct talks with the Chechen leaders, aided by the Organization for Security and Co-operation in Europe (OSCE).

In 2000, Pavel Felgenhauer commented: "In 1996, Russian generals insisted that they could 'liberate' Grozny only by totally destroying the city with massive heavy gun and aerial bombardments, but such an indiscriminate attack was not approved by the Kremlin.