Azerbaijan's President, Ilham Aliyev, said on Sunday his country's forces had taken Shusha, the second-largest city in the Nagorno-Karabakh enclave, but Armenian officials denied the city had been captured.
Shusha, which Armenians call Shushi, is of cultural and strategic importance to both sides and is located 15 kilometres south of the enclave's largest city, Stepanakert.
It is on a hilltop, with cliffs making it a natural fortress, and on the main road linking the city with the territory of neighbouring Armenia, which backs the separatists.
At least 1,000 people have died in nearly six weeks of fighting in and around Nagorno-Karabakh, a mountainous enclave internationally recognised as part of Azerbaijan but populated and controlled by ethnic Armenians.
"[This day] will become a great day in the history of Azerbaijan," Mr Aliyev said, announcing that Baku's troops had taken Shusha.
In Baku, Azeris gathered in large numbers to celebrate, waving flags and chanting slogans, while drivers sounded their car horns.
Azerbaijan has so far produced no evidence to support the claims.
Officials from the Nagorno-Karabakh region and Armenia's Defence Ministry denied Mr Aliyev's statement, but no official rebuttal has been issued.
"Shushi remains an unattainable pipe dream for Azerbaijan. Despite heavy destruction, the fortress city withstands the blows of the enemy," the Nagorno-Karabakh Rescue Service said before the announcement.
Armenia's defence ministry said that heavy fighting for the strategic site continues, while the Defence Army of Nagorno-Karabakh said they had repelled numerous attempts by the Azerbaijani side to advance on the town.
Emboldened by Turkish support, Azerbaijan has the upper hand in the bloodiest fighting in more than 25 years in the South Caucasus. In just over a month, it has retaken much of the land in and around Nagorno-Karabakh that it lost in a previous war over the territory in the 1990s.
The city could become a key staging post for an Azerbaijani assault on the enclave's largest city, Stepanakert. Both faced heavy shelling in recent days. Azerbaijan's defence ministry said allegations that it had shelled civilian areas were misinformation.
Shusha's population was predominantly Azerbaijani before the previous conflict, making it historically significant for Azerbaijan. For Armenians, it is the site of Karabakh's cathedral, which was damaged in shelling last month.
Azerbaijan has reclaimed swathes of territory on Karabakh's southern flank – with experts estimating Baku has retaken 15 to 20 per cent of the territory it lost in Nagorno-Karabakh and seven surrounding regions in the 1990s.
Much of this land is plains and the fighting will be much harder in the narrow passes and mountains where separatist forces have had years to build up their defences.
Armenian officials say any Azerbaijani gains have come at an enormous cost and claim to have killed several thousand enemy troops.