Ethiopian soldiers have breached a demilitarised buffer zone on the border with Eritrea, the United Nations mission in Ethiopia and Eritrea says.
Eritrean restrictions are hindering its peacekeeping work, says the UN
The Ethiopian troops withdrew on Wednesday - after five days in the zone set up after the end of a border war.
The incursion had come amid growing border tensions and violated the 2000 peace deal, an Unmee spokeswoman said.
On Wednesday, the UN Security Council threatened to impose economic sanctions on both countries if war resumes.
"There was an occupation," said Unmee spokeswoman Gail Bindley-Taylor-Sainte, adding that two soldiers, out of a 20-strong group, were involved.
The Ethiopians were upset after the UN withdrew an observation post, which has since been replaced, she said.
Eritrea has condemned the UN Security Council resolution as "deplorable", saying it reflects "the narrow interests of [the world's] major powers."
The resolution calls for Ethiopia to accept an international boundary commission decision which ceded land to Eritrea and for Eritrea to reverse its recent decision to ban UN peacekeeping flights along the border between the two countries.
The resolution calls on both states to reduce their forces ranged near the border to match the numbers seen in December last year.
"The situation is very grave, very serious," Russian Ambassador Andrei Denisov, the Security Council president for November, told reporters after the vote.
On Tuesday, the UN raised its security rating in Eritrea, amid fears of new hostility along the border.
Ethiopia and Eritrea fought a costly border war between 1998 and 2000.
A peace agreement in 2000 led to the demarcation of the border by an independent commission.
However, Ethiopia has not yet withdrawn its forces from the town of Badme, which was awarded to Eritrea.
In the past few months Eritrea has imposed restrictions on the activities of the UN peacekeeping force.
Earlier this month Ethiopia and Eritrea reinforced their military positions along their common border, when the UN Secretary General, Kofi Annan, warned of the possibility of renewed conflict.