(Baku) Azerbaijan said on Sunday that Armenian forces had shelled its second city of Ganja in an escalation of the war in the South Caucasus that broke out one week ago.

Armenia denied that it had directed fire "of any kind" towards Azerbaijan, but the leader of Nagorno-Karabakh, an ethnic Armenian enclave inside Azerbaijan, said his forces had destroyed a military airbase in Ganja.

The escalation carries the risk of a full-scale war between the former Soviet republics of Azerbaijan and Armenia that could drag in other powers. Azerbaijan is supported by Turkey, while Armenia has a defence pact with Russia.

Fighting that broke out one week ago between Azeri and ethnic Armenian forces has intensified in the past two days and spread way beyond the breakaway Karabakh region.

"Delivering fire on the territory of Azerbaijan from the territory of Armenia is clearly provocative and expands the zone of hostilities," Azeri Defence Minister Zakir Hasanov said.

Ganja, with a population of 335,000, is about 100 km (60 miles) north of the Karabakh capital Stepanakert and 80 km from the Armenian city of Vardenis.