Azerbaijan and ethnic Armenian separatists have continued to exchange fire in the area of the disputed Nagorno-Karabakh region, with the Azeri army threatening to shell its capital, Stepanakert.

Zakir Hasanov, the country's Defense Minister on Tuesday warned Azerbaijan's military would target Stepanakert unless the separatists stop with what Baku calls "aggression".

Both sides accuse each other of having attacked first, threatening to renew a conflict that was halted by a ceasefire in 1994.

Since then, ethnic Armenian separatists, backed by Armenia financially and militarily, have held control on the Nagorno-Karabakh region, surrounded by Azerbaijan's territory, recognized only by Armenia and several other entities.

Stepanakert on Sunday dismissed Baku's claims that Azerbaijan had initiated a ceasefire, describing it as propaganda.

Since then, Azerbaijan has maintained that the Armenian separatists are still shelling military positions and villages near the frontline.

The two sides report conflicting numbers of casualties. On Monday Trend News Agency said "Azerbaijan's armed forces neutralized up to 170 servicemen and 12 armored vehicles of the Armenian side", citing the Defense Ministry.

Baku later claimed a military headquarters in Nagorno-Karabakh had been destroyed by Azeri forces, publishing a video footage. It also said the losses of its own army amounted to 16 people.

Some Russian-language media outlets reports dozens of casualties on both sides, at least 200 troops and civilians having been injured.

Interfax quoted the Armenian Defense Ministry as admitting there are casualties on both sides.