
After World War I and the Polish-Lithuanian conflict of 1919-1922, Utena became part of independent Lithuania. During the interwar period, the influx of Lithuanians from the countryside caused the Jews to lose their majority status in Utena, and they now made up less than half of the population of the town. Nevertheless, for most of this period the town had a Jewish mayor, Avraham Zhurat (Abromas Žuratas). The economic status of the local Jews began to deteriorate in the interwar years, because of the official policy of the authorities, which were encouraging ethnic Lithuanians to join the commerce and the trades – to the detriment of the Jewish merchants and artisans. The Hebrew-language school of the Tarbut network, which had been established in the early 1920s, attracted twice as many pupils as did the Yiddish-language school of the Kulturlige, which had been established at the same time. Jewish migration overseas – to South Africa and North and South America – was conspicuous in the interwar years.
In the summer of 1940, following the outbreak of World War II, Lithuania was annexed by the Soviet Union. Utena underwent a rapid Sovietization; in particular, the Jewish parties were disbanded, and the Hebrew school was shut down. In June 1941, during the great deportation of "undesirable elements" from the Baltic countries, dozens of Jewish families and individuals were deported eastward, to Siberia. On June 22, 1941, the Soviet-German War broke out, and Utena was occupied by German troops on June 25. Although it took the Germans four days to reach Utena, the suffering of the local Jewish community had begun even earlier. Units of anti-Soviet Lithuanian partisans, known as baltaraiščiai ("white armbanders"), launched an anti-Jewish terror campaign; many Jews were abused, and some were even killed. With the arrival of the Germans, the terror became more systematic. Jews were recruited for forced labor, including some dangerous jobs.
In mid-July, the Germans moved all the Jews of Utena into an open-air camp in the nearby Šilalė Forest, and they carried out a new registration of the Jews there. On July 31 and August 7, 1941, the Germans and their local helpers shot more than 800 Jews in the Rašė Forest, some two kilometers north of Utena. The rest of the local Jews were placed in a makeshift ghetto. Three weeks later, on August 29, they were shot in the same Rašė Forest.
Utena was liberated by the Red Army in July 1944.