Ethiopia has warned that Somalia's transitional government is in danger of being sidelined by the growth in power of the country's Islamic Courts.
The Islamists are continuing to make gains in Somalia
The country's foreign ministry said much of the power within the Islamic Courts has fallen into the hands of "terrorist" elements.
There are also reports of arms flooding into Somalia despite an embargo, and Ethiopian troops massed at the border.
There are fears that Ethiopia could intervene against the Islamic Courts.
In a statement issued on an Ethiopian government website, a senior information official, Solomon Abebe, complained that too much power in Somalia was being concentrated in the hands of Sheikh Hassan Dahir Aweys, who chairs the Union of Islamic Courts.
He described Mr Aweys' al-Ittihad organisation as a "terrorist group".
"Any move which would be detrimental to the national interests of the country [Ethiopia] would not be tolerated," the official added.
The Islamic Courts, which took power in the Somali capital, Mogadishu, in June, have extended their control over the centre and south of the country.
Since then the Islamic Courts have strengthened their positions.
President Abdullahi Yusuf is a long-time ally of Ethiopia
Arms have flowed to them by air and by sea.
Diplomats say Eritrea is being used as a staging post for weapons supplies from Iran, Egypt and Libya - including sophisticated surface-to-air missiles.
These weapons have increased the confidence of the Islamic Courts, which are pushing northwards, and are reported to be 60km south of the town of Gaalkayo.
This is significant, since the town borders on Puntland, the rear base of President Abdullahi Yusuf.
Forces from Puntland have been mobilised to counter this threat.
But the BBC's Africa editor Martin Plaut says the president is in a weak position, in the central Somali town of Baidoa with his transitional government.
Many of his militia have defected to the Islamic Courts and his government is badly divided.
Meanwhile, Ethiopia is viewing the growing strength of the Islamists with apprehension.
It is reported to have six divisions - or close to 5,000 troops, including tanks, massed along the Somali border.
Diplomatic sources believe they could intervene if the Islamic Courts cross into Puntland, our correspondent says.
The US, which has forces in neighbouring Djibouti, is also seriously worried by these developments.
Analysts from the International Crisis Group also issued a warning in a report earlier this week.
"Military and diplomatic observers in Nairobi believe Ethiopia is preparing to carry out a short, sharp strike deep into southern Somalia if it deems the Courts a sufficient threat," the ICG reports said.
That moment could now be approaching, our correspondent says.