Azeri authorities earlier said their troops had managed to push back the Armenian forces, which had come within a mile of the town.
Local officials said the Armenian forces were now 5km (3 miles) outside Fizuli, which lies in a narrow strip of Azeri territory separating the disputed territory of Nagorny Karabakh from Iran.
Capturing Fizuli would have cemented gains made by Karabakh Armenian forces in a recent offensive and would have brought all of south- western Azerbaijan under Armenian control. 'The fate of Azerbaijan was decided at Fizuli. If we had lost the town it would have been a dramatic loss,' Mr Gambarov said.
Azerbaijan yesterday requested a United Nations Security Council meeting to discuss Armenian advances on its territory.
Anxiety has mounted for the fate of 15,000 civilians in western Azerbaijan whom Azeri authorities said had been trapped without food in wintry conditions in mountains as they tried to flee fighting.
About 200 refugees, including children, died in a hazardous 80km trek north across snowy mountain passes, the Russian newspaper Izvestia said.
'There's a nightmare on the other side of that mountain,' said Delimkhan Usipov, one of hundreds who survived the march to reach a refugee centre in the northern settlement of Khanlar. 'Yesterday, before my eyes, 60 people died in the pass,' said 66- year-old Mazem Kasimov.
An Azeri defence ministry statement said nearly one tenth of Azerbaijan was in enemy hands and 15,000 civilians fleeing the region around Kelbadzhar were trapped in desperate conditions. The official Azeri news agency said the Azeris were trying to airdrop food and medicine to trapped civilians.
Mr Usipov said he and others had been helped by the Armenian Red Cross. 'Where the world community is looking I do not know.'
Azerbaijan won fresh support from its most powerful ally, Turkey. 'This is not acceptable - the occupation of Azerbaijan by Armenia,' the Turkish President, Turgut Ozal, told reporters while visiting Uzbekistan. Ankara also announced that it had halted all flights bound for Armenia via Turkish airspace.
Armenians seized about 4,000 square km (1,500 square miles) of territory in western Azerbaijan near the disputed enclave of Nagorny Karabakh in an offensive launched on 27 March.
Armenia said a fierce battle raged south of the 12km Lachin corridor into Karabakh, established last May, after Azeri forces tried to cut it off. The mostly Armenian people of Nagorny Karabakh, a mountain region wholly enclosed by Azeri territory, have fought a five-year battle for independence from Azerbaijan in which several thousand people have died. In a huge military disaster for Azerbaijan, Armenian forces captured the western town of Kelbadzhar on Saturday and a broad slice of territory adjoining Karabakh.
Armenia says it is sympathetic to the Karabakh Armenians' struggle but is not involved itself. It denied it had any claim on territory in the offensive. 'Armenia is not claiming one square metre of Azeri territory and the border remains unchanged,' a spokesman for the Armenian President, Levon Ter Petrosyan said.
Iran urged Armenia to pull out of Azeri territory and voiced deep concern over the flare-up of fighting between its neighbours. A foreign ministry statement said political negotiation, not war, could settle the dispute between the two former Soviet republics.
'Choosing non-political methods and prefering war to peace has served to delay establishment of peace and friendship between the Azeri and Armenian nations and has jeopardised the human and economic sources of both countries,' it said. The statement 'called for withdrawal of Armenian forces from areas they have occupied recently'.
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