Armenia said on Monday that fighting was continuing for the key town of Shusha in Nagorno-Karabakh, a day after Azerbaijan claimed to have captured it from Armenian separatist forces.

Azerbaijani President Ilham Aliyev announced on Sunday his forces had taken Shusha, known to Armenians as Shushi, a strategically vital town that is the second-largest in the disputed region.

Armenian officials denied the claim and said clashes in the area were ongoing.

"Intensive combat has been waged in the Shushi-Karintak sector," Armenian defence ministry spokeswoman Shushan Stepanyan said on Twitter, referring to a village at the base of cliffs on which the town sits.

"The enemy has retreated, while friendly forces have occupied more favourable lines," she said.

The capture of Shusha would be a major victory for Azerbaijan six weeks after new fighting erupted over Nagorno-Karabakh, an ethnic Armenian enclave that broke away from Azerbaijan's control in the 1990s.

The fortress town lies around 15 kilometres (nine miles) from the enclave's largest city Stepanakert and on the main road to Armenia, which backs the separatists.

New clashes broke out in late September between Azerbaijan and the separatists over Karabakh, which declared  independence nearly 30 years ago.

That declaration has not been recognised internationally, even by Armenia, and it remains a part of Azerbaijan under international law.

The recent fighting has been the worst in decades, with at least 1,000 people killed including dozens of civilians and the death toll believed to be much higher.