Ethiopia has confirmed that its troops are fighting Islamic militiamen that control much of Somalia.
The government is getting military help from Ethiopia
Ethiopia's information minister said his country's forces had launched "self-defensive measures" against the Islamic Courts Union (UIC).
Ethiopia had previously admitted to sending only army trainers to Somalia.
In the latest fighting between the UIC and the weak, Ethiopian-backed government, air strikes and shelling are being reported in border areas.
Eyewitnesses said Ethiopian fighters were bombarding the UIC-held town of Beledweyne near the border, on the fifth day of renewed fighting.
"The enemy of Allah has started bombing our civilians," Sheikh Hassan Derrow told AFP news agency.
A resident told AFP: "We see planes striking us and heavy fighting on the ground intensifying."
Ethiopian Information Minister Berhan Hailu later said: "The Ethiopian government has taken self-defensive measures and started counter-attacking the aggressive extremist forces of the Islamic Courts and foreign terrorist groups."
The UIC has vowed to drive out Ethiopian troops which it says have been fighting alongside government forces for months.
The Islamic group - which controls most of the south, including the capital, Mogadishu - on Saturday appealed for foreign fighters to join them in a "holy war" against Ethiopia.
The conflict is also reported to have spread to the Galkayo area further north.
Both sides say they have killed hundreds of people since the fighting began on Tuesday - although aid agencies report dozens of dead.
The recent clashes have heightened fears of a regional war.
The UN estimates that at least 8,000 Ethiopian troops may be in the country, while rival Eritrea is said to have deployed some 2,000 troops in support of the Islamic group.
However, Eritrean President Isaias Afewerki denied his country had troops deployed in Somalia.
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