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No state has recognised Nagorno-Karabakh as independent. YEREVAN, Nov 23 (Reuters) - Armenia said onNov. 23it could recognise breakaway Nagorno-Karabakh as an independent state if Azerbaijan carries out its threat of military action to take back the mountain territory.

Tensions over the Armenian-populated region, which broke away from Muslim Azerbaijan with Christian Armenian backing in the early 1990s, are rising as Armenia pursues an historic thaw with Azeri ally Turkey to the anger of oil-producing Azerbaijan.

Armenian President Serzh Sarksyan and Azerbaijan's Ilham Aliyev held talks on Sunday on the rebel territory at the heart of the South Caucasus, a strategic crossroads between East and West and key transit region for oil and gas to Europe.

In comments broadcast on Saturday, Aliyev warned that Azeri patience was running thin and that without a breakthrough soon, Azeri troops were ready to take back the territory by force.

Sarksyan's spokesman Samvel Farmanyan said in a statement: "It should be noted that Armenia so far has not recognised the independence of Nagorno-Karabakh for one reason -- so that it would not become an obstacle to peaceful negotiation."

"If peaceful negotiations break down and military action begins, then nothing stands in the way of Armenia recognising the independence of Nagorno-Karabakh."

Fighting in Nagorno-Karabakh erupted as the Soviet Union headed towards its 1991 collapse. Some 30,000 people died and more than 1 million were displaced before a ceasefire in 1994.

Ethnic Armenian forces took control of the territory of 100,000 people and seven surrounding Azeri districts, including a land corridor to Armenia.

With no peace deal, soldiers on the frontline continue to be picked off by landmines and snipers. No state has recognised Nagorno-Karabakh as independent.

A bid this year by Turkey and Armenia to bury a century of hostility stemming from the mass killing of Armenians by Ottoman Turks has thrust the dispute back into the diplomatic spotlight.

Ankara says it wants Armenian forces to pull back before it ratifies a deal to establish diplomatic ties with Yerevan and open the border it closed in 1993 in solidarity with Azerbaijan.

Azerbaijan, courted by Europe to supply gas for the planned Nabucco pipeline, has reacted angrily to the thaw, fearing it will lose leverage in the Nagorno-Karabakh conflict.

Media reports in Azerbaijan and Turkey speculate about a possible Armenian pullback from the Azeri districts adjacent to Nagorno-Karabakh in order to clinch the deal with Turkey. Farmanyan said "such a question is not being discussed."

Mediators from the United States, Russia and France gave little away on Sunday after Aliyev and Sarksyan's sixth meeting this year, saying they made "important progress" but also met some difficulties.

They said they would work with the sides' foreign ministers ahead of an OSCE Ministerial Council in Athens on Dec. 1-2.