There has been a build up of troops on the border
United Nations Secretary General Ban Ki-moon has warned that a new war could break out between Ethiopia and Eritrea if UN peacekeepers are withdrawn.
Mr Ban urged the UN Security Council to make a swift decision on the future of the forces, which have been monitoring a buffer zone in the region since 2000.
The UN has already withdrawn most of its peacekeepers after Eritrea cut off fuel and food to the UN mission.
Eritrea accuses the UN of allowing Ethiopia to occupy Eritrean territory.
Tens of thousands of people died in the two countries' 1998-2000 border war.
There had been 1,700 UN troops monitoring the buffer zone, but now only 164 remain at the base in Eritrea.
Speaking to the BBC, Eritrean Ambassador Araya Desta dismissed Mr Ban's report, saying it was for the UN Security Council to resolve the remaining dispute over the Ethiopian occupation of Eritrean territory around the town of Badme.
He also accused the UN of politicising its decision to withdraw most of its troops from the buffer zone.
He said Eritrea was not planning to attack Ethiopia, but added that his country was prepared to fend off any invasions into Eritrean territory.
"If the Ethiopians invade us, we'll be forced to defend ourselves," Mr Desta told Reuters news agency.
The BBC's UN correspondent, Laura Trevelyan, says a complete withdrawal of UN troops could undermine future deployments elsewhere.
In the report released on Wednesday, Mr Ban outlines options for the future of the mission.
He says one option is that the mission could return to its full strength, liaison offices in the Ethiopian and Eritrean capitals could be established, or a small observer mission could be deployed in the border area.
Our correspondent says diplomats are concerned about the precedent which could be set by the UN's complete withdrawal - fearing it will show that governments can bully UN peacekeepers and win, which in turn could deter countries from offering up their troops to serve as peacekeepers.