Yerevan (AFP) - Armenia on Saturday threatened arch-foe Azerbaijan with "retaliatory" artillery and rocket strikes, and accused Baku of breaching the shaky truce that ended their bloody war over the disputed Nagorny Karabakh region two decades ago.

"In order to quell the enemy's (military) actions... Armenian armed forces will be hereafter using proportionate means of artillery and rocket striking, permanently targeting positions of Azerbaijani armed forces, all movements of military manpower and equipment," Armenia's defence ministry said in a statement.

Earlier on Saturday, Armenian President Serzh Sarkisian accused Azerbaijan of "blatant violation of the ceasefire," saying his country "is afraid of a war, but is not afraid of fighting."

"Armenia -- and when I speak of Armenia, Nagorny Karabakh is its integral part -- is among the world's most militarised territories," he said in televised remarks.

Yerevan and Baku are locked in a protracted conflict over the breakaway region of Nagorny Karabakh, an ethnic Armenian enclave in Azerbaijan.

The two ex-Soviet nations regularly exchange fire along their shared border and across Karabakh's volatile frontline.

But in an unprecedented escalation since the 1994 ceasefire, both sides reportedly used large-calibre artillery in tit-for-tat attacks over the last two days, highlighting the risk of a new all-out war.

On Friday, the rebel authorities in Karabakh accused Azerbaijan of killing four of its soldiers. On Thursday Armenia had said that Azerbaijan shelled its territory with large-calibre artillery, killing three civilian women.

Azerbaijan for its part accused Armenia of "turning civilians into a target by deliberately stationing its firing positions in and around civilian facilities to shell positions of the Azerbaijani armed forces."

International mediators to the Karabakh peace talks held under the aegis of the Organisation for Security and Cooperation in Europe (OSCE) on Saturday "condemned in strong terms the use of artillery that caused additional casualties in the last twenty-four hours... An escalation of violence is not in the interest of Azerbaijanis or Armenians, or a negotiated settlement."

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They also called on both countries to "accept an OSCE mechanism to investigate ceasefire violations.

"Without such a mechanism, (both) sides will continue to blame each other for initiating deadly attacks on the Line of Contact and Armenia-Azerbaijan border," they said in a statement noting Armenia had agreed to discuss details of the proposal.

Ethnic Armenian separatists backed by Yerevan seized control of the territory during a 1990s war that left some 30,000 dead.

Despite years of negotiations, the two countries have not signed a final peace deal to cement a tenuous ceasefire.

Energy-rich Azerbaijan, whose military spending exceeds Armenia's entire state budget, has threatened to take back the breakaway region by force if negotiations fail to yield results.

Armenia -- backed by Russia, which sells weapons to both Baku and Yerevan -- says it could crush any offensive.