Armenia has agreed to return several villages to Azerbaijan in what both sides said on Friday was an important milestone as they edge towards a peace deal after fighting two wars since the collapse of the Soviet Union.

Azerbaijani Foreign Ministry spokesperson Aykhan Hajizada posted on X that Armenia would return four villages near the countries’ shared border that had been “under occupation” since the early 1990s, and called it a “long-awaited historic event”.

In Armenia, the state news agency quoted the prime minister’s office as saying: “In this process, the Republic of Armenia receives a reduction in risks associated with border delimitation and security.”

It said the handover in practice involved only “two and a half villages” because Azerbaijan already partly controlled the settlements involved, but added that the demarcation of the border was a “significant event”.

The settlements are deserted but are strategically important as they are close to Armenia’s main highway north towards the border with Georgia, through which much of its trade is done, and to the pipeline through which it receives gas from Russia.

The agreement was reached at a meeting on the two countries’ border, chaired by their deputy prime ministers.

Azerbaijan has been demanding the villages’ return as a precondition for a peace deal after more than three decades of conflict, mostly centred on the region of Nagorno-Karabakh.

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Momentum shifted dramatically in favour of Azerbaijan last September when its forces staged a lightning offensive to regain control of Karabakh, where ethnic Armenians had enjoyed de facto independence since the mid-1990s.

Virtually the entire population of 100,000 people fled to Armenia within days.

Russia posted peacekeeping troops in Nagorno-Karabakh after the last major war between Armenia and Azerbaijan in 2020, but said this week it had begun withdrawing them. Azerbaijani President Ilham Aliyev is due to meet Russian President Vladimir Putin on Monday.

Russia, distracted by its war in Ukraine, risks losing influence in the Caucasus region which it sees as its historic sphere of influence. The United States and the European Union have also been pressing the two sides to reach a peace deal.