Somalis in south central regions say Ethiopian troops routinely venture across the border and clash with Islamists controlling their towns.
This is the first time soldiers from the neighboring country are fighting militia in the semi-autonomous and breakaway regions in the north.
"The Ethiopians have been on our side in Buhoodle for seven days. I don't know how the fighting began but I have seen 11 wounded people being taken to hospital," Mohamed Elmi, an elderly man in the town, told Reuters.
He said seven Somalis had been killed in the violence.
"Those who were killed were residents, not militias fighting with the Ethiopians," he said, adding that two Ethiopian soldiers could also have been killed.
In 2006, Ethiopia sent troops to defend Somalia's interim government with tacit US approval. The force advanced toward the capital rapidly, taking Mogadishu and driving the Islamists to Somalia's southern tip.
That drew protests from some in the Muslim world and enraged the Islamists, who regrouped to launch an insurgency threatening President Sheikh Sharif Sheikh Ahmed's government.
"There is so much violence. We can still hear guns firing," said Safia Yusuf, a mother. "A lot of people are fleeing and we are scared the clashes will continue because the Ethiopians haven't left and militias are getting reinforcements."
Violence between Islamist groups and Somalia's weak government has killed more than 21,000 people since the start of 2007 and uprooted at least 1.5 million.
