Azerbaijan paraded thousands of soldiers and hundreds of military vehicles through its capital Sunday, in a show of force two days after talks failed to resolve a bitter territorial dispute with Armenia.

Azerbaijani President Ilham Aliyev, who has overseen massive increases in defence spending, warned in his speech that he was ready to take back the disputed Nagorny Karabakh region, which was seized from Azerbaijan in the 1990s by Armenian separatist forces backed by Yerevan.

"The war is not over yet," Aliyev said at the showpiece parade in the centre of Baku, vowing to end what he called the "occupation" of Karabakh.

"The territorial integrity of Azerbaijan must be restored and the territory will be restored," he said.

Six thousand troops marched in the parade, accompanied by tanks, armoured cars and rocket launchers, as fighter planes and combat helicopters roared overhead and warships lined up in the nearby Caspian Sea bay.

In his speech, Aliyev also spoke approvingly about the increases in defence spending financed by the energy-rich state's huge revenues from oil and gas exports.

"Azerbaijan has fulfilled the task that I set, which was that Azerbaijan's military expenditure must exceed the entire state budget of Armenia," he said, noting that defence spending reached $3.3 billion this year.

Military hardware manufactured in Azerbaijan, including unmanned drones, was on show for the first time to highlight the country's expanding defence industry.

The parade in Baku was the third in the country's post-Soviet history and also marked this year's 20th anniversary of independence.

It was shown live on state television in a broadcast preceded by a series of patriotic songs accompanied by images of troops in action and President Aliyev wearing camouflage fatigues.

The parade was held after the leaders of Azerbaijan and Armenia failed to agree despite strong international pressure to a roadmap document that would have been a significant step towards a Karabakh peace deal.

The two enemies traded accusations after the summit in Russia on Friday, with Armenia saying that Azerbaijan had torpedoed the talks by wanting a dozen changes to the document and Baku saying that Yerevan was seeking to mislead the world.

The outcome was a major disappointment after hopes had been raised of a long-awaited breakthrough in the talks, which were presided over by Russian President Dmitry Medvedev in the city of Kazan.

Seventeen years after the Karabakh ceasefire, the opposing sides still often exchange deadly fire across the frontline and Baku has repeatedly threatened to use force if negotiations don't yield results.

Fears have been raised of a return to war that could prove even bloodier than the 1990s conflict and potentially threaten pipelines taking Caspian Sea oil and gas from Azerbaijan to Europe.

The interim basic principles agreement would see an Armenian withdrawal from areas around Karabakh that were also seized during the post-Soviet war.

It also envisages international security guarantees and a vote on the final status of the territory at some point in the future.

But even if the document is eventually agreed, huge obstacles remain to a final peace deal.

Armenia insists that Karabakh will never again be ruled by Baku, while Azerbaijan insists that the region must remain part of its sovereign territory.

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