Hitler’s continual concern for the northern areas of Norway and Finland complicated things for the Army of Lapland. Dietl was informed by OKW at the end of February that the main mission of the Army of Lapland was the defense of the Pechenga area against both amphibious and overland attacks. The OKW was also concerned about the threat posed by the Soviet troops on the Rybachiy Peninsula and Dietl was ordered to prepare plans to seize the peninsula. However, no time frame for this operation was established. Still preoccupied with the amphibious threat in the north, Hitler ordered the Army of Lapland in the middle of March 1942 to transfer three battalions to Mountain Corps Norway as a mobile defense force along the arctic coast in Finland, a further reduction of forces in the area of the main effort.
The Soviets launched their offensive on the Kestenga front on April 24, 1942. They began with an attack by the 23rd Guards Division and the 8th Ski Brigade against a thinly defended part of the line on the left flank of the Finnish III Corps east of Kestenga. As the attack got underway during the day, the Soviets also attacked in the center. The corps’ left flank began to give way on April 26 and it became obvious from intelligence that the Soviets intended to overwhelm the corps or drive it back to the area west of Kestenga.
The Army of Lapland did not have adequate reserves, but General Dietl committed all he had to stem the Soviet offensive. This included one tank battalion with obsolete Panzer I tanks, a company from the Brandenburg Regiment, and a battalion of the 139th Mountain Regiment from the XXXVI Mountain Corps. Finnish III Corps also brought in one battalion from the Ukhta sector. The 5th Air Fleet had been ordered to concentrate its efforts on the Murmansk convoys and the Murmansk Railroad. Since this was a crisis situation, the 5th Air Fleet fighters and bombers were switched from their bases at Banak and Kirkenes to Kemi behind the III Corps front.
When the Soviet offensive reached a point north of Kestenga, Dietl asked Mannerheim on May 1, 1942 for the 12th Finnish Brigade as reinforcement for III Corps. This brigade was the nearest major Finnish unit to the III Corps sector. Mannerheim refused to provide Finnish troops to the German operation (it was actually Finnish III Corps that needed help) but instead made a counteroffer. He offered to replace the 163rd German Infantry Division, committed on the Svir front, with Finnish forces withdrawn from the Maaselkä sector. The 163rd Division would then be brought forward to the Army of Lapland area provided the Germans returned the 14th Infantry Regiment from the Kestenga sector. This regiment had operated under German command since July 8, 1941 and Mannerheim was anxious to get it back under his own control. Exchanging these units would also further his goal of removing Finnish forces from German command as well as German forces from his own command. Mannerheim also offered to take responsibility for the Ukhta sector along with the forces currently located there, something he had refused in December 1941.
Mannerheim’s proposal was not to Dietl’s liking since the promised help would be too late to affect the situation he was confronting. Nevertheless, he accepted since it would provide him with an extra division for the long haul and would also relieve him of the responsibility for the Ukhta sector.
In early May, the Soviets brought in reinforcements in the form of the 186th Rifle Division and the 80th Rifle Brigade. These units were added to the forces opposite the left flank of III Corps to add weight to the Soviet envelopment. The Germans scrambled to find forces to meet the increased threat. The two remaining battalions of the 139th Mountain Regiment were brought in from the XXXVI Mountain Corps and another battalion was brought in from the Ukhta front. Two battalions from the right flank of III Corps were also committed against the Soviet advance that now consisted of two infantry divisions and two brigades with nine battalions.
The situation reached a crisis stage on May 3, when the Russians attempted a wide envelopment from the north using a brigade from the 186th Rifle Division and the 8th Ski Brigade. The goal of this envelopment through dense virgin forests was to come down from the north behind the German positions and cut the road west of Kestenga. The commander of III Corps, General Siilasvuo, proposed abandoning Kestenga and establishing a new defensive line further west between Lakes Paya and Top. Dietl rejected the proposal because he felt that losses in such an operation would be heavy. He ordered III Corps to hold its position even if its line of retreat to the west was severed.
The two Soviet enveloping units almost succeeded in isolating III Corps. Advance units were only three kilometers from the road leading west from Kestenga on May 5. Here, however, the Soviet offensive ran out of steam in the swampy forests northwest of Kestenga. The initiative switched to the Germans and Finns, and by May 7 German and Finnish units were able to encircle the two Soviet brigades. The two Soviet units took severe losses in the very intense fighting. The 8th Ski Brigade, for example, was virtually destroyed and down to a strength of 367 men. The 186th Rifle Division saw a 40 percent reduction in strength. The situation was not much better for the two divisions that had not participated in the envelopment—the 23rd Guards Division and the 80th Rifle Division.
The German–Finnish defensive operations were partly successful because the Soviets, with decisive superiority in numbers, attacked piecemeal and failed to orchestrate and coordinate their attacks. Dietl concluded that the danger had passed and decided to counterattack.
The counterattack was not launched until May 15, 1942, because of the spring thaw. The Soviets had used the interim period to construct formidable fortifications. The Germans were forced to launch frontal attacks against the Soviet lines after three battalions of Finns making a flanking attack became bogged down in impassable terrain. The frontal attacks breached the Soviet lines on May 21 and Soviet resistance began to collapse. III Corps had almost regained its former front line when General Siilasvuo halted the advance on May 23, before the troops had reached the most advantageous defensive positions. In doing so, Siilasvuo acted against General Dietl’s orders.
Dietl decided not to challenge General Siilasvuo’s almost incomprehensible decision. He did so primarily because he was afraid that the Finns would pull their forces out of the front and leave the Germans in the lurch. He limited himself to issuing an order restricting Siilasvuo’s authority to withdraw troops from the front line. This action did not prevent the feared action by the Finns. General Siilasvuo disregarded Dietl’s order and on May 24 he ordered all Finnish forces withdrawn from the German sector. This was accompanied by a Finnish demand that the Germans return all Finnish horses and wagons within three days. If fulfilled, this demand would deprive the Germans of the assets they needed to keep their troops supplied. Dietl appealed to Siilasvuo not to leave his German comrades in a hopeless position on the battlefield. The “brotherhood-in-arms” concept was beginning to show serious cracks.
Dietl saw the handwriting on the wall and he took immediate action to make German units independent of Finnish support as quickly as possible. He also asked the OKW to speed up the arrival of the 7th Mountain Division. In this last effort he was disappointed because Hitler had just decided that the units from the 7th Mountain Division sent to Army Group North earlier would remain with that organization for the time being.
Lead elements of the XVIII Mountain Corps headquarters began arriving in Finland on June 3, 1942. Dietl planned to have this corps headquarters take over the Kestenga front in the middle of June but General Siilasvuo refused to relinquish his command until the majority of the Finnish troops were out of the area.
It is unlikely that General Siilasvuo would have stopped the counterattack, demanded the return of transportation resources, and refused to relinquish command until most of the Finnish troops were out of the area unless he was ordered to do so or had the acquiescence of Mannerheim—despite denials by the Finnish liaison officer at the Army of Lapland that any pressure had been exerted on General Siilasvuo by his Finnish superiors. The Army of Lapland in its assessment on May 23, 1942, noted that “In the course of the last three weeks the army has received the growing impression that the Commanding General, III Corps, either on his own initiative or on instructions from higher Finnish authorities, is avoiding all decisions which could involve Finnish troops in serious fighting.”27