[2] After a series of border incidents in the spring and early summer of 1939 escalated into the Battles of Khalkhin Gol, Shtern was given command on 5 July of a "front group", which coordinated all Soviet forces in the Far East.

The front group oversaw future World War II commander Georgy Zhukov's 57th Special Rifle Corps, fighting at Khalkhin Gol, but on 19 July the corps was converted into the 1st Soviet Mongolian Army Group and given operational independence from Shtern's command, in order that Zhukov could act without interference from Shtern and on direct orders from the General Staff.

[4] According to British military historian Geoffrey Roberts, Shtern played a central role in planning the Soviet counterattack in August, but Zhukov was its chief organizer and executor.

Shtern was awarded the title Hero of the Soviet Union on 29 August 1939, for his "courage and bravery in the performance of military duties"[2] at Khalkhin Gol.

After being struck by the notorious torturer Lev Shvartzman with an electric cable with such force that it severed his right eye,[6] he "confessed" that he had belonged to a Trotskyist conspiracy within the Red Army from 1931, and that he was a German spy.