Peter Semneby, the EU's envoy to the South Caucasus, said the ceasefire between Azerbaijan and Armenian-backed forces in Nagorno-Karabakh should be strengthened, possibly with the deployment of more international observers after a summer of intensified skirmishes.

"It is a precarious situation we have along the Line of Contact, because it is ... a self-regulated ceasefire with the two parties facing each other without any separation force in between," Semneby said.

Semneby said one possibility would be to deploy more observers, saying the six-person monitoring mission of the Organisation for Security and Cooperation in Europe (OSCE) was limited in its ability to monitor and investigate.

"I think that both sides are very much aware of the risks and costs of an escalation ... but there's always the risk that something can go out of hand," Semneby told Reuters late on Tuesday in Tbilisi after a trip to Azerbaijan.

"I believe the Azerbaijani leadership is aware of the enormous risks and potential costs that would be associated with an attempt to resolve the conflict by military means," Semneby said.