The Russians were dropping delayed-action, half-ton bombs that tore into the reinforced concrete lattice-work and buried themselves deep inside the 11-storey, Brezhnev-era building before exploding. One of the bombs penetrated the basement bunker.
There was no news of the 200 Russian prisoners held there. The Chechens also abandoned the railway station to the south, which they had recently recaptured.
The palace's capture is a symbolic blow but makes little military difference to the battle for Grozny.
Led by Aslan Maskhadov, the Chechen chief of staff, the last defenders slipped out of the south end of the building and headed south to the river Sunzha, crossing by an intact bridge east of the railway station.
Mr Maskhadov, who was in Nasran, the capital of neighbouring Ingushetia, to seek talks with Russian military commanders last night, said he planned to return to Grozny early today. "We are ready to carry on fighting with even more force."
Mr Maskhadov said the palace had been evacuated because it had been destroyed by shelling and the Chechen headquarters had been shifted to a spot about a kilometre away.
Chechen fighters saidthey would continue their resistance from bases throughout the large area under their control, where every house is a fortress and every cellar a bunker.
The Russians had been trying to to capture the palace for several days. Marines swarmed towards the ground floor under covering artillery fire, but the Chechens held buildings on either side and each time the Russians were caught in crossfire and beaten back.
The time taken to seize one building should make Russian commanders pause to contemplate the task ahead. But its capture may be the victory they need to consider a ceasefire.
The Russians, who admit that they have lost 1,160 servicemen in Chechnya, yesterday started clearing mines and removing the bodies of their dead from around the building. Tanks continued to shell the city centre and its suburbs yesterday. Chechens responded with small-arms fire and grenades, Reuters reporters said.
Meanwhile, President Boris Yeltsin said that Russia's military operation was effectively over and promised to re-establish law and order in the region. "The next task of re-establishing law and order and the civic rights of the population is being transferred to the Ministry of the Interior."
Hundreds of interior ministry troops, backed by tanks, armoured personnel carriers and anti-aircraft guns mounted on lorries, dug into a string of bases along the road from neighbouring Dagestan to the east into the capital.
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