The sudden surge of violence in the disputed region of Nagorno-Karabakh has the potential to set off an all-out war between Armenia and neighbouring Azerbaijan, Armenian President Serzh Sargsyan said Monday.

The former Soviet republics have clashed for decades over the disputed region, populated primarily by Armenian Christians but recognized by the United Nations as part of predominantly Muslim Azerbaijan.

"A further escalation of military actions could lead to unpredictable and irreversible effects, up to a widespread war," Sargsyan said at a meeting with an envoy of the Organization for Security and Cooperation in Europe (OSCE), the Interfax news agency reported.

"This will naturally affect the security and stability of not only the South Caucasus but also Europe," Sargsyan was quoted as saying.

A statement by the Armenian Foreign Ministry late Monday accused Azerbaijan of targeting a bus in a drone strike that killed five people.

According to media reports, the incident occurred 60 kilometres north of Stepanakert, the disputed region's provincial capital.

The leadership of Nagorno-Karabakh, which is not recognized internationally, has accused Azerbaijan of aggression in what has been the deadliest escalation in recent years of simmering tensions.

Sargsyan is scheduled to visit German Chancellor Angela Merkel on Wednesday, with the talks expected to focus on the heightened regional tensions.

Armenia and Azerbaijan have traded blame for the violence, which reportedly broke out Friday night. It has been the worst fighting in the area since the countries agreed to a ceasefire in 1994.

A spokesman for the government said 20 Armenian soldiers have been killed since the violence flared Saturday.

Azerbaijan reported 18 fatalities, including three civilians, but the Defence Ministry said Monday in a statement on its website that 170 soldiers had died in the recent fighting.

The ministry's press service told Interfax that it was preparing for a potential strike on Stepanakert if the "enemy side does not cease its strikes on our population centres."

Russian Foreign Minister Sergei Lavrov told reporters that he and the Russian defence minister had spoken to their counterparts in the region and expressed "the most serious concern and that it is essential to stop violating the ceasefire regime as soon as possible."

Lavrov voiced similar concerns in a telephone call with US Secretary of State John Kerry, Moscow said.

In Washington, State Department spokesman Mark Toner said that the Nagorno-Karabakh fighting was the two envoys' top concern in the call.

Kerry and Lavrov discussed "efforts to secure an immediate end of the violence that has erupted along the line of conflict, and encourage both Armenia and Azerbaijan to resume settlement talks under the auspices of the OSCE," Toner said.

He said Washington deplored the civilian casualties and had urged "both sides to stop using force immediately and to avoid any kind further escalation."

The Armenian Defence Ministry alleges that Azerbaijani troops started the fighting with an offensive involving tanks and artillery, to which Armenian forces responded by shooting down a combat helicopter and destroying several tanks and drones.

Azerbaijan denied the allegations, saying its soldiers were reacting to heavy attacks from the Armenian side.

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