Baku and Yerevan put themselves on a war footing after heavy fighting erupted yesterday between Azerbaijan and Armenian separatists, claiming military and civilian casualties on both sides. 

The worst clashes since 2016 have raised the spectre of a fresh war between arch enemies Azerbaijan and Armenia which have been locked for decades in a territorial dispute over the Armenia-backed breakaway region of Nagorny Karabakh.

The region is internationally recognised as part of Azerbaijan but controlled by ethnic Armenians. Armenia and Azerbaijan broke away in the dying years of the Soviet Union.

A major confrontation between the ex-Soviet Caucasus neighbours risks drawing in big regional players Moscow and Ankara.

Turkey's President Recep Tayyip Erdogan yesterday pledged support for Muslim-majority Azerbaijan during the new crisis while Russia, traditionally seen as an ally of Armenia, called for an immediate ceasefire and talks to stabilise the situation.

France, Germany and the EU swiftly urged an "immediate ceasefire," while Pope Francis prayed for peace.

The Armenian defence ministry spokesman, Artsrun Hovhannisyan, said intense fighting continued along the Karabakh frontline yesterday afternoon.

Azerbaijan said it had captured seven of its Armenian-controlled villages, a claim Yerevan denied. It also claimed to have killed sixteen Armenian separatist fighters.

Later, Azerbaijan's presidency claimed its forces captured from Armenian rebels a strategic mountain that helps control transport communications between Yerevan and the Armenian-held enclave.

Azerbaijani forces have taken the 3,000-metre-high "strategic" Murovdag peak in Karabakh, presidency spokesman Hikmet Hajiyev told journalists.

In a televised address to the nation earlier in the day, Azerbaijan President Ilham Aliyev vowed victory over Armenian forces.

"Our cause is just and we will win," Aliyev said, repeating a famous quote from Soviet dictator Joseph Stalin's address at the outbreak of World War II in Russia.

"Karabakh is Azerbaijan," he said. 

Both Armenia and the breakaway region of Nagorny Karabakh declared martial law and military mobilisation.

"Get ready to defend our sacred homeland," Armenian Prime Minister Nikol Pashinyan said on Facebook.

"I call on the international community to use all existing levers to prevent Turkey's meddling (in the conflict) which can once and for all destabilise the (Caucasus) region," Pashinyan said in a televised statement.

He added that Turkish "aggressive behaviour causes serious concerns," and denounced Ankara's support for its ally Baku.

Armenia said earlier that Azerbaijan attacked civilian settlements in Nagorny Karabakh including the main city Stepanakert.

Azerbaijan accused Armenian forces of violating a ceasefire, saying it had launched a counter-offensive to "ensure the safety of the population", using tanks, artillery missiles, combat aviation and drones.

"There are reports of dead and wounded among civilians and military servicemen," Azerbaijan's foreign ministry said. "Extensive damage has been inflicted on many homes and civilian infrastructure."

Ethnic Armenian separatists seized the Nagorny Karabakh region from Baku in a 1990s war that claimed 30,000 lives.

Talks to resolve one of the worst conflicts to emerge from the 1991 collapse of the Soviet Union have been largely stalled since a 1994 ceasefire agreement.

France, Russia and the United States have mediated peace efforts as the "Minsk Group" but the last big push for a peace deal collapsed in 2010.

Political observers said global powers should intensify talks to stop the conflict.

"We are a step away from a large-scale war," Olesya Vartanyan of the International Crisis Group told AFP.

"One of the main reasons for the current escalation is a lack of any proactive international mediation between the sides for weeks," she added.

"War is resuming. Time for Russia, France and US, individually and jointly, to stop it," tweeted Dmitry Trenin, director of the Carnegie Moscow Centre.

Karabakh separatist leader, Arayik Harutyunyan, accused Ankara of sending mercenaries to Azerbaijan.

Yesterday morning, Azerbaijan started "active bombing" along Karabakh's frontline including civilian targets and in the main city Stepanakert, Karabakh's presidency said.

The rebel defence ministry said its troops shot down four Azerbaijani helicopters and 15 drones, while Baku denied the claims.

On Friday, Aliyev accused Armenia of undermining Karabakh peace talks.

In July, heavy clashes along the two countries' shared border -- hundreds of kilometres from Karabakh -- claimed the lives of at least 17 soldiers from both sides.

Raising the stakes, Azerbaijan at the time threatened to strike Armenia's atomic power station if Yerevan attacked strategic facilities.

During the worst recent clashes in April 2016, around 110 people were killed.