Ethiopian tanks are pounding parts of the Somali capital, stepping up a week-long campaign against insurgents and fighters from the Hawiye clan.
More than 300,000 civilians have fled the violence in the capital
Heavy shelling is also taking place near the presidential palace - guarded by Ethiopian and African Union troops.
And about five people were killed in a suspected suicide bomb attack near a hotel frequented by officials.
Meanwhile, Ethiopia's prime minister has said the number of civilian casualties has been exaggerated.
UN chief Ban Ki-moon has called for an end to clashes in which more than 250 people have died in the past week.
Ethiopian forces and insurgents are exchanging heavy fire. Mortar and other artillery shells are also landing, Khalid Haji, a resident at Fagah in the north of the capital told AFP news agency.
Rotting bodies have been left on the streets for days according to witnesses.
Some clan fighters want Ethiopian troops to leave
A BBC reporter in Mogadishu says a car packed with explosives went off near Hotel Ambassador killing mainly civilians.
Several people were injured but there no reports if any of Somali's interim government officials were harmed.
"Many disfigured bodies were strewn on the street after the explosion but its not known who is behind the attack," Shabelle News website reported.
Ethiopian Prime Minister Meles Zenawi denied there had been a "large number" of civilian casualties.
He also said that most of Mogadishu was "perfectly stable" with only a few "trouble spots".
He further denied reports that the Hawiye clan - Mogadishu's largest - was fighting against his troops and the Somali government. He said it was just members of the small Ayr sub-clan.
Somalia's Prime Minister Ali Mohammed Ghedi said the government forces were winning the war against insurgents.
Mr Ghedi dismissed claims that Ethiopian backed government forces have committed genocide in Mogadishu during their campaign against insurgents.
Ethiopians arrived in December to help the transitional government
Deputy Prime Minister Hussein Aideed, who launched an alliance opposed to Ethiopians in Somalia, in neighbouring Eritrea, has called for an international probe into the killings in the capital.
Mr Aideed should feel ashamed for attacking policies of the government he serves, his conduct will soon be discussed by the cabinet, Mr Ghedi told a news conference in Mogadishu.
Ethiopian forces have been in Mogadishu since December last year after helping Somalia's transitional government oust the Union of Islamic Courts (UIC).
Mr Ghedi also blamed the insurgents for the take over of the southern port town of Kismayo on Monday following two days of fighting between rival clans.
Fighters from the Marehan clan have taken control of the town in what correspondents say is a big blow to the government.
The UN refugee agency says more than 300,000 people have fled the capital and a living in terrible conditions outside the city.
UNHCR spokesperson Catherine Weibel told the BBC the agency is now providing relief supplies to about 20,000 displaced persons in Afgooye about 30km from Mogadishu.
Somalia has not had a functional government since 1991. A transitional government was formed in 2004, but has so far failed to take full control of the country.
Ethiopian troops have started to withdraw, to be replaced by an African Union peacekeeping force, but only 1,200 of the 8,000 troops the AU says it needs have been deployed.