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European Council President Charles Michel has welcomed the "major breakthrough" in Armenia-Azerbaijan relations after they agreed to release prisoners.

In a social media post on Thursday, Michel called on the countries to finalize the peace treaty.

“Delighted to welcome a major break through in Armenia-Azerbaijan relations as they issue a joint statement. Welcome in particular release of detainees and unprecedented opening in political dialogue," he posted on X.

"Establishing and deepening bilateral dialogue between sides has been a key objective of the EU-led Brussels process: today’s progress is a key step. I now encourage the leaders to finalise the Armenia-Azerbaijan peace deal ASAP," Michel added.

In a joint statement issued late on Thursday night, the two sides said they had agreed to seize “a historic chance to achieve a long-awaited peace in the region” and hoped to sign a peace treaty before the end of the year.

“The two countries reconfirm their intention to normalize relations and to reach the peace treaty on the basis of respect for the principles of sovereignty and territorial integrity,” the statement added.

It said Baku will free 32 Armenian prisoners of war, while Yerevan will release two Azerbaijani servicemen in agreements reached during talks between the offices of the Armenian and Azerbaijani leaders.