BAKU/YEREVAN: Azerbaijan said on Sunday that Armenian forces had fired rockets at its second city of Ganja, killing one civilian and wounding four, and threatened to retaliate by destroying military targets inside Armenia.

The developments marked a sharp escalation of the war in the South Caucasus that broke out one week ago.

Until now, the main fighting has been between Azerbaijan and Nagorno-Karabakh, an ethnic Armenian enclave inside Azerbaijan, but it now threatens to spill over into a direct war with Armenia itself.

"Azerbaijan will destroy military targets directly inside Armenia from which shelling of its population centres is taking place," presidential aide Hikmet Hajiyev said.

He said there were also civilian casualties in another Azeri region, Beylagan, which borders Nagorno-Karabakh.

Armenia denied it had directed fire "of any kind" towards Azerbaijan. The leader of Nagorno-Karabakh said his forces had targeted a military airbase in Ganja but later stopped firing in order to avoid civilian casualties.

The conflict threatens to drag in other regional powers as Azerbaijan is supported by Turkey, while Armenia has a defence pact with Russia.

Turkey's Foreign Ministry said: "The attacks of Armenia targeting the civilians in Ganja...are a new manifestation of Armenia's unlawful attitude. We condemn these attacks."

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

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.