The insurgent group took control of the port of Kismayo, south of the capital Mogadishu, on Friday in a blow to the interim government, which had signed a peace deal with some opposition figures this week, Reuters reported.
The United States has accused al-Shabaab of providing logistical support to al-Qaida, which is working to establish an Islamic government in Somalia.
"Kismayo is totally under the control of al-Shabaab and they are walking inside the town with their machine guns," said resident Abdi Weli Osman, according to Bloomberg News.
An estimated 3,000 people have reportedly fled the fighting, which broke out Wednesday around Kismayo, reported the BBC.
Some mortars landed near the compound of President Abdullahi Yusuf, who is currently visiting Ethiopia. Another landed near a mosque in Bakara market, killing at least six people, a witness told the BBC.
Mogadishu had been under the lawless rule of warlords since a 1991 coup, but in 2006 Islamist fighters backed by the Somali Islamic Courts Council forced the warlords out of the city.
Under threat of an Islamist takeover of the country, the Somali government backed by Ethiopian forces drove them from several towns and cities and from the capital.
Since then, al-Shabaab rebels have been targeting the fragile government and Ethiopian military with roadside bombs and mortars.
U.N.-led negotiations have aimed to end the violence, and on Monday, the talks produced a tentative peace agreement between Yusuf's government and some opposition figures. But the deal has been rejected by al-Shabaab commanders and other opposition hardliners, Reuters reported.
Overall, the violence in Somalia has killed more than 8,000 people and caused an estimated 1 million to flee their homes.
