Baku and Yerevan put themselves on a war footing after heavy fighting erupted on Sunday between Azerbaijan and Armenian separatists, claiming military and civilian casualties on both sides, including at least one child.

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 Nagorno Karabakh.

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

Russia, 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 Sunday afternoon.

Azerbaijan said it had captured seven of its Armenian-controlled villages, a claim Yerevan denied.

'Sacred homeland' 

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 leader 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.

Armenia said earlier on Sunday 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."

Karabakh's rights ombudsman Artak Beglaryan pointed to "civilian casualties", while Armenia said a woman and child were killed.

Russia, EU urge ceasefire 

Ethnic Armenian separatists seized the Nagorno 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.

Azerbaijan's ally Turkey blamed Yerevan for the flare-up and promised Baku its "full support".

"We strongly condemn the attack by Armenia against Azerbaijan," Turkish President Recep Tayyip Erdogan's spokesman Ibrahim Kalin said on Twitter.

Russia's Lavrov spoke with his Turkish counterpart Mevlut Cavusoglu, Moscow said, stressing "the need to halt fire as soon as possible".

The two discussed "Armenia's aggression", a Turkish diplomatic source said.

Pope Francis told crowds on Saint Peter's Square he was praying for peace and called for "concrete gestures of good will and fraternity" from the warring sides.

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.

'Turkish mercenaries' 

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

"We have information that mercenaries from Turkey and other countries were airlifted to Azerbaijan," he said.

"The Turkish army is already in Azerbaijan, under the guise of military drills," he claimed.

On Sunday 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.