Azerbaijani President Ilham Aliyev said on Tuesday a peace deal with Armenia was closer than ever before, as teams from both countries began demarcating the border in a bid to end decades of territorial disputes and clashes.

Aliyev's optimism comes amid progress on marking the border despite protests in Armenia, still bruised after Baku seized control of the contested Nagorno-Karabakh region in a lightning offensive last year.

On Tuesday, teams from both countries installed the first border marker after officials had agreed to delimit a section based on Soviet-era maps.

"We are close as never before," Aliyev said on Tuesday of an elusive peace deal.

"We now have a common understanding of how the peace agreement should look like. We only need to address details," he said.

"Both sides need time... We both have political will to do it."

Armenian Prime Minister Nikol Pashinyan last month agreed to return four border villages that were part of Azerbaijan when the two countries were republics of the Soviet Union.

Armenian protests

Aliyev said Tuesday he had accepted a proposal by Kazakhstan to host a meeting of their foreign ministers. 

Several countries have tried to play mediator — including Russia, Iran, the United States, France and Germany — but years of talks have failed.

Aliyev downplayed the need for third party intervention.

"We are not talking about any kind of mediation, because what happens now on our border demonstrates that when we are left alone... we can agree sooner than later," he said.

Experts from both countries installed the first marker on Tuesday, they announced in identical statements.

Rallies had earlier erupted in Armenia, with protestors briefly blocking traffic at several points on the Armenia-Georgia highway, fearful of giving up more land.

Yerevan said Tuesday it would not transfer "Armenia's sovereign territory".

The four abandoned settlements which are to be returned to Azerbaijan — Lower Askipara, Baghanis Ayrum, Kheirimly and Gizilhajili — were taken over by Armenian forces in the 1990s, forcing their ethnic Azerbaijani residents to flee.

But Armenian residents of nearby villages worry they will end up isolated from the rest of the country and that some houses could fall into Azerbaijani territory.

The area has strategic importance for landlocked Armenia. 

Several small sections of the highway to Georgia — a vital trade artery — could be handed over.

The delimited border will run close to a major Russian gas pipeline, in an area that also offers advantageous military positions.

'Sign of peace'

Pashinyan has insisted on the need to resolve the border dispute "to avoid a new war".

On Saturday, he said Russian guards — deployed in the area since 1992 — would be replaced "and border guards of Armenia and Azerbaijan will cooperate to guard the state border on their own".

Border delimitation was a "significant change", he said, adding: "now have a border and not a line of contact, which is a sign of peace," Pashinyan added.

Last autumn, Azerbaijani troops recaptured the breakaway Nagorno-Karabakh region from Armenian separatists in a one-day offensive that ended a bloody three-decade standoff over the region.

But lingering territorial claims have continued to threaten a fresh escalation.

Baku has claims over four more villages located in exclaves deeper in Armenian territory.

It is also demanding the creation of a land corridor through Armenia to connect the mainland to the Nakhichevan exclave and onwards to close ally Turkey.

Yerevan, in turn, points to its own exclave in Azerbaijan and pockets of land Baku has seized over the last three years outside of Karabakh.