Serbia has talked up the possibility of an armed intervention in Kosovo after the parliament in Pristina overwhelmingly approved the formation of an army.

Belgrade called the move the “most direct threat to peace and stability in the region”, while Nato’s chief said it was “ill-timed” and urged dialogue.

All present 107 politicians in the 120-seat Kosovan parliament voted in favour of passing three draft laws to expand an existing 4,000 Kosovo security force and turn it into a regular, lightly armed army. Ethnic Serb politicians boycotted the vote.

Serbia insists the new army violates a UN resolution that ended Kosovo’s 1998-99 war of independence. It has warned bluntly that it may respond with an armed intervention in the former province. The Serbian prime minister, Ana Brnabić, said this was “one of the options on the table”.

The president, Aleksandar Vučić, visited Serbian troops on the border with Kosovo on Friday. Nikola Selaković, an adviser to Vučić, said Serbia could send in armed forces or declare Kosovo an occupied territory. The foreign minister, Ivica Dačić, said Serbia would seek an urgent session of the United Nations security council over the issue.

In Serb-dominated northern Kosovo, the Serb leader Goran Rakić said the new army was “unacceptable” and “showed clearly that Pristina does not want peace.” Rakić urged Serbs in Kosovo to show “restraint and not respond to provocations”.

In a sign of defiance, Serbs in the north displayed Serbian flags on streets and balconies, while Nato-led peacekeepers were deployed on a bridge in the ethnically divided northern town of Mitrovica.

Russia’s foreign ministry denounced the Kosovan move and said the army must be disbanded.

Any Serbian armed intervention in Kosovo would mean a direct confrontation with thousands of Nato-led peacekeepers, including US soldiers, stationed in Kosovo since 1999.

Kosovo declared independence from Serbia in 2008, a move not recognised by Belgrade or its ally Russia, and tensions have remained high between the two sides.

Nato and the European Union, which has led years-long talks to improve ties between the Balkan neighbours, expressed regret that Kosovo had decided to go ahead with the army formation.

“I reiterate my call on both Pristina and Belgrade to remain calm and refrain from any statements or actions which may lead to escalation,” said Jens Stoltenberg, the Nato secretary general.

The army will preserve its current name, Kosovo Security Force, but will have a new mandate. In about a decade the army expects to have 5,000 troops and 3,000 reservists, and a €98m annual budget. It will handle crisis response and civil protection operations – essentially what the current paramilitary force, which is lightly armed, does. Its main tasks will be search and rescue, firefighting and disposal of explosive ordnance and hazardous material.

It was not immediately clear how much more equipment or weapons the army will have.

Serbia fears the move’s main purpose is to chase the Serb minority out Kosovo’s north, a claim strongly denied by Pristina.

The US reaffirmed its support for “the gradual transition … to a force with a territorial defence mandate, as is Kosovo’s sovereign right.”

The Kosovan war ended with a 78-day Nato air campaign in June 1999 that halted a Serbian crackdown against ethnic Albanian separatists.