Lawmakers in Azerbaijan approved a 2012 budget Tuesday that forecasts steady economic growth for the energy-rich ex-Soviet state and boosts defence spending amid its military stand-off with Armenia.

The budget predicts that Azerbaijan's gross domestic product will grow by 5.7 percent next year, maintaining growth in the Caucasus republic where the economy has been buoyed by oil and gas exports.

Defence and military spending will rise by 1.9 percent to 1.4 billion Azerbaijani manats ($1.8 billion/1.3 billion euros) -- almost 15 percent of the entire state budget -- amid the continuing conflict with neighbour Armenia over the disputed region of Nagorny Karabakh.

Total budget revenues for 2012 are predicted to be 16.4 billion manats ($21 billion/16.6 euros), with expenditure at 17 million manats ($21.6 billion/16.1 billion euros).

Inflation is forecast at six percent.

A largely Muslim country of 9.1 million people strategically located between Russia and Iran, Azerbaijan is a key partner in projects delivering energy from the Caspian Sea area to the West via pipelines through Turkey, bypassing Russia.

It is locked in a long-simmering conflict with Armenia over Karabakh, where ethnic Armenian separatists backed by Yerevan seized control during a war in the 1990s that left some 30,000 dead, and no peace deal has yet been signed.