NATO Secretary-General Anders Fogh Rasmussen on Thursday said he was "deeply concerned" about the pardoning of a Azerbaijani soldier who axed an Armenian officer to death during a NATO training course.

"I am deeply concerned by the Azerbaijani decision... The act he committed in 2004 was a terrible crime and should not be glorified," Rasmussen said in a speech at Yerevan State University during a visit to Armenia.

Azerbaijani lieutenant Ramil Safarov was extradited to Baku last week from Hungary, where he had been serving a life sentence for hacking the Armenian officer to death in Budapest.

Safarov was immediately pardoned and promoted to the rank of major after returning home to a hero's welcome, in defiance of assurances from Baku to Budapest that he would serve out his term in Azerbaijan.

The issue has inflamed tensions between ex-Soviet foes Armenia and Azerbaijan which are locked in an unresolved conflict over the disputed territory of Nagorny Karabakh where they fought a war in the 1990s.

"The pardon damages trust and doesn't contribute to the peace process," Rasmussen said.

"Tensions must be reduced and concrete steps must be taken to promote regional cooperation and reconciliation."

Rasmussen said he would convey the same message to Azerbaijan when he visits Baku on Friday.

More than a thousand young Armenians demonstrated outside the university where Rasmussen was speaking, chanting "Shame! and "We demand justice!"

"We demand that NATO expresses a tough position towards Hungary and Azerbaijan, revises its cooperation with Azerbaijan... and achieves Safarov's return to Hungary so that he continues serving his jail term there," protest organiser Artur Kazarian told AFP.

Armenia has broken off diplomatic links with Hungary over the extradition and subsequent pardon, which has also sparked concern in Washington, Brussels and Moscow.

At a press conference with Rasmussen later on Thursday, Armenian President Serzh Sarkisian said that "making a hero out of a criminal is unacceptable".

"Azerbaijan's shameful act seriously endangers the security of the entire south Caucasus," he said.

But Azerbaijani Foreign Minister Elmar Mammadyarov again rejected international criticism.

"The case of Ramil Safarov needs to be considered in the context of the Armenian aggression against Azerbaijani territories and the policy of ethnic cleansing pursued by Armenia against Azerbaijani people," he said in comments published on the foreign ministry's website.

Safarov's lawyers claimed in court that he was traumatised because his family became refugees during Azerbaijan's war with Armenian forces, and alleged that the man he killed had insulted his country.

Campaign group Amnesty International however expressed concern that the pardon would be "perceived as an endorsement of ethnically-motivated violence".

"By pardoning and then promoting Ramil Safarov, President Aliyev has signalled to Azerbaijanis that violence against Armenians is not only acceptable, but rewarded," Amnesty said in a statement.

Armenia and Azerbaijan have not signed a peace deal since the 1994 ceasefire and there are still frequent gun-battles along the Nagorny Karabakh frontline.

Baku has threatened to take back the disputed region by force if long-running negotiations do not yield results, while Yerevan has vowed massive retaliation against any military action.