Ethiopia's government denied the presence of its troops in its neighbor to the east, but claimed it would "crush" any Islamist effort to take control of Baidoa, currently the seat of Somalia's transitional government and the only town left under government control.
"If the Islamic courts led by the Jihadists are attacking Baidoa, we have told them we will not let them do it," Ethiopian spokesman Bereket Simon told the BBC.
The country's Information Minister Berhan Hailu told the BBC, "We have the responsibility to defend the border and the Somali government. We will crush them."
Islamic militias loyal to Somalia's Islamic Courts Union wrested power from U.S-backed warlords in Mogadishu in June vowing to bring order to the mostly lawless Horn of Africa nation.
Warlords have controlled Mogadishu and other parts of Somalia since 1991 when they ousted military dictator Mohamed Siad Barre.
But the United States and the Somali government, nominally in power since 2004 but wielding little if any control over the country and having no military power, have accused the Islamic Courts of supporting terrorists and planning a takeover of the government to institute strict Islamic rule.
On Wednesday, militia troops entered the town of Buur Hakaba just 37 miles from Baidoa, raising fears it could attack the seat of power, Reuters reported.
The head of the Islamic Courts Union Sheik Shariff Sheik Ahmed denied attempts to ouster the government telling local radio stations, "Our intention was not to attack Baidoa," the Associated Press reported.
To help bolster the government, some 20 to 25 armored Ethiopian vehicles crossed the border into Somalia, leaving some forces at bases near the border and setting up others within the government compound in Baidoa, about 150 miles northwest of Mogadishu, witnesses told news services.
A Christian country with little desire to see a hardline Islamic nation on its borders, Ethiopia has twice before entered Somalia -- once in 1993 and again in 1996 -- to stifle Islamic attempts to establish a religious government, the AP reported.
Ethiopia has about 5,000 troops in Somalia and along its borders, Reuters reported.
A top Islamic militia leader said his forces would drive the Ethiopian forces out.
"God willing, we will remove the Ethiopians in our country and wage a jihadi war against them," Sheikh Mukhtar Robow told reporters.
Despite Ethiopia's claim that it supports the government of Abdullahi Yusuf, BBC Africa analyst Martin Plaut told the news organization that the presence of Ethiopian troops could seriously undermine the credibility of the Somali government.
Many political leaders will not want to support a puppet government, he said.
Other analysts hope the troop presence could help maintain some stability in the nation and may help the two sides return to peace talks.